What Is Business Interruption Insurance?

What the Cover Protects

Clause A.1 of Türkiye’s Fire Insurance General Conditions limits cover to “direct” material damage. That is half the picture. The building is repaired and the plant replaced, but if production stopped for three months, the earnings lost and the fixed costs that carried on are not a fire claim.

Clause A.1 of the Fire Loss of Profits Insurance General Conditions covers loss of profit from the full or partial stoppage of a commercial activity, where that stoppage follows damage to the assets used in it caused by a peril insured under a fire insurance contract, up to the sum insured.

The same clause defines loss of profit as the gross profit lost, within the indemnity period, through the reduction in turnover and the increase in cost of working incurred to prevent it. The second head is routinely overlooked — temporary storage rent, subcontracting premiums and expedited freight all belong to it.

It should not be confused with the “loss of rent and loss of use” line on the fire policy. That line rests on clause A.3.3.7, needs its own sum insured and looks at the property being unusable; loss of profits looks at the earnings of the business.

What It Attaches To, and on What Condition

Loss of profits is not a standalone purchase in Türkiye. Clause A.1 requires two conditions together: the assets used in the business must have been damaged by a peril insured under a valid fire contract, and that damage must have been indemnified — or liability admitted — by the fire insurer.

This dependency is the point most often missed. Where a peril is not insured on the fire policy, the resulting loss of profit is not payable either; clause A.4.1 says so expressly. Cover bought alongside a fire policy with no earthquake clause will not respond to production halted by an earthquake.

Clause A.2 leaves the scope to the parties: the situations covered are freely agreed from among the perils insured under the related fire contract. Not every fire peril has to be carried over — but every peril carried over must exist on the fire policy.

The Indemnity Period Is the Line That Matters

The most contested line is not the sum insured but the indemnity period. Under clause A.3 the insurer is liable from the damage until the stoppage is fully resolved, subject to the maximum stated in the policy.

The period must reflect the time the business genuinely needs to return to normal, not the time to repair the insured machine. The components are debris removal, adjustment and permit procedures, lead time for replacement plant, commissioning, and winning back lost customers. Where imported plant alone runs to months, a short maximum cuts the cover off mid-claim.

Period and sum insured move together. Clause A.6 applies the rate of gross profit to the standard turnover rather than the annual turnover where the period exceeds twelve months; changing one without the other produces underinsurance.

Gross Profit, Turnover and the Sum Insured

The sum insured is not accounting profit and not the tax base. Under clause A.5 the insurer’s liability is limited to the sum insured, and that sum, unless otherwise agreed, is the gross profit calculated on the basis in the wording. The table below summarises the Definitions section.

Clause A.6 governs how the figure is set: the estimated turnover for the indemnity period is the basis, and it may be revised quarterly. If the sum insured falls below the amount produced by applying the rate of gross profit to the annual turnover — or the standard turnover beyond twelve months — the indemnity is reduced in that proportion.

The indemnity is calculated under clause B.6: from the gross profit lost, the wording deducts the operating expenses that would have been met out of gross profit during the indemnity period but were saved because of the damage. Value added tax is excluded throughout.

Exclusions and the Time Deductible

Clause A.4 sets out the exclusions in three sub-clauses, all flowing from the link to the fire policy. The deductible regime in clause A.8 is specific to this cover: a stated amount, percentage and/or period of the loss may be left uninsured, provided any time deductible is not shorter than seventy-two hours.

A time deductible keeps short disruptions outside cover. The seventy-two hour floor sits in the wording, so no shorter one can be agreed.

• Loss of profit from perils not insured under the related fire contract is excluded (A.4.1).
• Loss of profit from perils outside those stated in the loss of profits policy is excluded (A.4.2).
• Loss of profit arising after bankruptcy or after the business ceases trading is excluded (A.4.3).
• A time deductible may not be shorter than seventy-two hours (A.8).
• Any sum insured above the insurable value is void and the premium refunded (A.7).
• Claims under the contract are time-barred after two years (C.8).

From Loss to Payment

A loss of profits file runs on accounting records, not debris. Orderly books close the file quickly.

• Notify the insurer within five business days of learning of the loss (B.1.1).
• Take the steps you would take if uninsured to minimise the stoppage, and follow the insurer’s instructions (B.1.2).
• Produce the accounting books, receipts, invoices and balance sheets the insurer requires (B.1.4).
• Income earned from alternative premises, or by others on your behalf, counts towards turnover (B.3).
• Submit the detailed claim in writing within thirty days of the end of the indemnity period (B.1.7).
• The insurer must assess and notify within thirty days of receiving the documents (B.4); payment follows within thirty days of the end of its liability period (B.8.1).

Where We Come In as an Agency

RYL Sigorta Aracılık Hizmetleri Limited Şirketi is an insurance agency; the policy is issued and the claim is paid by the insurance company we place the business with. On loss of profits our work is threefold: matching the two schedules line by line, setting the maximum indemnity period with plant lead times costed in, and building the sum insured on estimated turnover.

A badly built loss of profits policy either runs out early or pays short. If you carry the cover already, let us review both schedules together; if not, start from how long recovery would genuinely take.

Frequently Asked Questions

Sources

• SEDDK — Insurance General Conditions
• Fire Loss of Profits Insurance General Conditions
• Fire Insurance General Conditions (in force 1 January 1993)
• Fire Clauses

This article is for information only; the scope of cover is set by the policy’s specific and general terms.