I was the sole developer on a critical API integration. I got appendicitis and was in the hospital for 4 days, then recovery for a week. I missed the deadline. The client sued for delay damages. I thought my “Business Interruption” insurance would pay me. It didn’t pay a dime, and the lawsuit was barely covered.
Key Takeaways
- Business Interruption (BI) requires Property Damage: Standard BI pays if your office burns down. It does not pay if you get sick.
- Disability Insurance (DI) pays YOU: You need Short-Term Disability insurance to replace your income while sick.
- Key Person Insurance: If you have a partner, this pays the company if you die or are disabled.
- E&O “Failure to Deliver”: Your liability policy defends the lawsuit from the client, but you must prove the illness was a “Force Majeure” event to win.
The “Why”: The Physical Damage Trigger
The Trap:
- You think: “I can’t work, so Business Income insurance pays.”
- The Policy: “We pay for loss of income caused by direct physical loss of or damage to property.” (e.g., Fire, Wind).
- The Body is not Property: Your appendix bursting is not a covered peril under a Business Owners Policy (BOP).
The Investigation: I Quoted 3 Options
1. Northwestern Mutual (Disability)
- My Analysis: This is what you need for income. It replaces 60% of your salary if you can’t code due to illness. It doesn’t help with the client lawsuit, though.
2. Hiscox (E&O)
- My Analysis: They defend the lawsuit. If the client sues for $20k because you were late, Hiscox argues: “Sudden illness is excusable delay.” Coverage applies to the defense, not your lost income.
3. Lloyd’s (Key Person / Contingency)
- My Analysis: You can buy specific “Contract Frustration” or “Key Man” insurance that covers contract penalties due to illness. It is expensive and usually for high-value film stars or CEOs, not average devs.
[IMAGE: Graphic distinguishing “Health Insurance” vs “Disability” vs “Business Interruption”]
Comparison Table: Sickness Coverage
| Risk | Insurance Type | Pays… |
| Lost Income | Disability (DI) | You |
| Client Lawsuit | E&O | Client |
| Contract Penalty | Contract Frustration | Client (Rare) |
| Office Rent | Business Overhead Expense | Landlord |
Step-by-Step Action Plan
- Buy Disability Insurance: Do this personally. It’s your safety net.
- Add Force Majeure to Contract: Ensure “Illness/Incapacity” is listed as a valid excuse for delay.
- Have a Backup: For critical projects, have a subcontractor arrangement ready to take over if you go down.
- Notify Carrier: If the client threatens to sue for the delay, report it to E&O.
FAQ
Does my LLC protect me?
From personal bankruptcy? Yes. From the business losing money? No.
Can I bill the client for the delay?
No.
What is Business Overhead Expense (BOE)?
It’s a specific disability policy that pays your business bills (software subs, rent) while you are sick, so you have a business to come back to.