Beyond Wildfires: Understanding Business Interruption Risks in LA

After the wildfires of January 2025, an already challenged insurance market in California became even more difficult for small businesses and agents to navigate, particularly in cities like Los Angeles, where the wildfire exposure was previously misunderstood. As significant losses occur in concentrated locations, traditional carriers adjust their underwriting strategies, increase pricing, withdraw from the market, or modify coverages upon renewal. 

The recent protests that occurred in Los Angeles (and other major cities in the nation) have highlighted another risk facing city-based small businesses that add to their challenge of finding consistent, appropriate, and affordable insurance coverage.

In a blog post earlier this year, we outlined the ways that businesses can protect themselves from crime, looting, and vandalism risk. While the recent events did not produce nearly the level of looting and vandalism that we saw in 2020 across the country, these best practices remain critical. However, the events did highlight another exposure that could be even more challenging to manage - loss of income resulting from business and neighborhood closures due to compliance with Civil Authority (e.g., government) direction. 

The weeklong business curfew in Los Angeles led to many small businesses having to close early or not open at all due to concerns about public safety, compliance with the order, and reduced foot traffic. Fewer hours mean less revenue, and in the case of some food-centric businesses, a loss of inventory that needs to be discarded. In addition, being shut down doesn’t alleviate monthly expenses like payroll and rent, and a business closure for as little as 24 hours could lead to material financial strain for low-margin businesses.

At times, we’ve seen instances where local governments provide financial relief to businesses or community lenders offer short-term, low-interest loans to assist. However, could there be any recourse within the traditional insurance policy? The answer is that there may be if you purchased comprehensive business interruption insurance, which sometimes goes unpurchased due to a desire to save money.

At its core, business interruption or loss of income coverage can be insured. However, the exposure is carefully managed by carriers as a significant exposure across an entire portfolio (perhaps one that impacts multiple sectors of the economy globally) could lead to outsized financial loss that could cripple capital necessary to cover more frequent losses like fires, water damage or slip and falls. 

So what about now and the LA situation?

In short, it depends on the type of insurance coverage you have. That’s why it’s so important to understand what your insurance policy covers and to speak with your agent or trusted advisor about what options may be available to you. 

In many Commercial BOP or Property policies, business interruption coverage may be purchased and is designed to provide coverage for lost revenue and expense reimbursement that emanates from a covered cause of loss that causes damage to your property. For example, if your business suffers a fire loss and is shut down for a period of time, the coverage is designed to provide expense reimbursement and income protection. The same could apply to vandalism or looting loss. The available coverage limit is often capped at a dollar amount for a period of time, and a waiting period deductible (e.g., a pre-determined number of hours of forgone lost income before recovery) applies. 

Some policies offer coverage extensions that provide business interruption protection if a covered loss causes damage to a property at an adjacent/proximate location and you suffer financial loss on account of resulting Civil Authority action. If you had purchased this coverage, you may have recourse to business interruption coverage if you’re in the curfew zone and a neighboring business was vandalized. 

It’s critically important that businesses understand what insurance options are available. In addition, it’s important to understand how deductibles apply, what maximum limit is available, and how loss of income is calculated. These are not easy concepts, but your agent can assist. Lastly, we encourage you to develop relationships with neighboring businesses, share risk mitigation strategies, and collaborate with your local advocacy groups to better understand the various financial risks facing small businesses. We included a few suggestions here.

District Cover, with the support of your local insurance agent, is here to help.