What is the interruption rule?

The interruption rule, also known as the interruption clause in insurance and accounting, determines whether two or more events are considered connected or separate. It’s essential for evaluating continuing damage or resetting insurance deductibles.

1. Understanding the Interruption Rule

The interruption rule defines how long a break between losses is allowed before considering each event separately. For insurance:

• If the gap between losses falls within the defined interruption period, the insurer treats them as a single claim.

• If the gap exceeds that period, each event is treated separately, potentially triggering new deductibles or coverage limits.

2. How It Works in Insurance

In property and business interruption policies:

• Suppose two floods hit within a 7-day interruption period; they count as one continuous loss, covered under a single deductible.

• If a second flood occurs outside that period—say, two weeks later—it’s treated as a new claim, with its own deductible and limits.

• The exact length of interruption period varies by insurer—commonly between 7 to 14 days, but may stretch to 30 days in some cases.

3. Why It Matters

• Deductible and limits: Multiple events counted as one avoid repeated deductible charges and often extend coverage limits.

• Claim continuity: Helps in scenarios like ongoing water damage, windstorm sequences, or burst pipes over several days.

• Premiums and payouts: Recognizing multiple events as one claim can reduce overall cost for insureds and simplify claims processing.

4. Accounting & Tax Considerations

• In accounting, the interruption rule helps determine when to treat financial losses as one connected event vs. independent events.

• Tax and financial audits use it to categorize losses and determine allowable deductions or carryover of interruption expenses.

Summary Table

Final Takeaway

The interruption rule defines how insurers and accountants treat repeated or sequential losses: as one claim or as multiple. Understanding its time limits ensures you don’t unintentionally pay multiple deductibles or lose coverage continuity when damage persists over time.

Need help interpreting your policy’s interruption rule or accounting guidance for loss events?
With over 30 years of insurance and financial experience, THAgency can analyze your policy wording, explain possible claim scenarios, and identify the best approach—fast, clear, and obligation-free.