Business Interruption Insurance

Business interruption insurance helps replace lost profits and pay for extra expenses when a business is affected by a covered occurrence. It is typically part of a business’s commercial property insurance policy.

Business interruption insurance works in conjunction with your commercial property insurance. For instance, if your business suffers a fire, your commercial property insurance would cover the physical damages, and the business interruption insurance would cover the lost income from the interruption in business because of the fire.

There are two basic types of commercial property insurance policies—policies that protect against “named peril,” and policies that protect against “all risks” (as defined below)

“Named perils” policies typically include theft, fire, wind, falling objects, vandalism, or lightning.

“All risks” policies cover property damage (i.e. physical losses) and business interruption loss resulting from any unexpected cause, unless it is specifically excluded in the policy.

Business interruption insurance can usually help reimburse you for the following: (1) Lost profits, (2) Mortgage/Rent payments, (3) Utility payments, (4) Tax payments, (5) Payroll, (6) Advertising expenses, and (7) Relocation fees.

Probably not, however, there are ongoing legal cases that focus on whether some common business interruption insurance policies cover COVID-19 related shutdowns. As these cases progress, we will provide updates here.

“Named Peril” Policies

COVID-19 and other health emergencies are typically not listed as a “named peril” under a standard business interruption policy. Even if your policy contains a “named peril” that is applicable to the COVID-19 outbreak, unless direct physical damage occurs on your property or adjacent properties, business interruption coverage is usually not triggered.[6]

For example, if your business property is closed due to fears of COVID-19, but the property itself remains habitable, then your business likely will not meet the direct physical loss requirement.

“All Risks” Policies

With repect to an “all risks” policy, COVID-19-related business interruption losses may be covered if: (a) there is no applicable exclusion in the policy, and (b) an insurer or court decides that “physical loss” has occurred at the covered property.[7] If the property is contaminated (for example, an infected person has been inside), that situation may meet the direct physical loss requirement, especially if your business would otherwise be open but has had to close for cleaning. However, any cases directly relevant to the COVID-19 outbreak are still in their very early stages, so it is not easy to say for sure how an insurer will respond to such a claim. You should check with your insurance company with respect to your coverage.

Currently, there are lobbying efforts in Congress to pressure insurance companies to provide some sort of relief for businesses suffering from closures due to COVID-19. One idea that is being considered is creating a $100 billion federally backed business interruption insurance program to provide money to businesses in an expedited time frame.[8] However, no concrete plan has been announced yet.

Currently, many insurers are taking the stance that their business interruption policies do not cover a forced business closure cause by order of a “civil authority” (any branch of federal, state, or local government). However, this issue of whether “all risks” policies do cover “civil authority” shutdowns is the subject of ongoing litigation. As these cases progress, we will provide updates here.

Typically, there is no coverage for losses sustained when a business closes due to mere fear of contagion, but not actual physical contamination. Also, there is typically no coverage for prophylactic measures taken before actual property damage occurs (even if the order of civil authority is issued to prevent physical damage from contamination).

 

If you believe you may have insurance coverage for a COVID-19-related expense, you should consider the following steps:

1. Contact your insurance agent as soon as possible.
2. Review your insurance policy to determine how to best present your claim. It is important to understand your policy’s limits and deductibles before spending time documenting losses that may not be covered.
3. Collect and maintain accurate records to support your claim. If your business still operates but in a different way, one that requires additional expenses, you may be able to include those extra expenses in your claimYou should be able to segment and separate those expenses from your normal expenses.
   
   If your business was forced to close down, you should have a collection of records to expenses that continue during the time that your business is closed, such as advertising and the cost of utilities. Among the usual necessary documents for a business interruption insurance claim are:
   • Pre-disaster financial statements and income tax returns;
   • Post-disaster business records;
   • Copies of current utility bills, employee wage and benefit statements, and other records showing continuing operating expenses;
   • Receipts for supplies needed for transferring the business online; and
   • Paid invoices from contractors, security personnel, media outlets and other service providers.
   4. Promptly notify your insurer of your claim and file your claim. Unnecessary delay in notifying your insurer or filing your claim may give your insurer grounds to deny it.
   5. Be as responsive as you can with your insurer. Give your insurer all the key facts you have about the claim and respond to your insurer as quickly as possible if your insurer requests any documents or information related to the claim.
   6. Mitigate your damages. Your insurer will likely require you to take reasonable actions to reduce the damages you suffer for which you intend to receive reimbursement as part of your claim.

If you are unhappy with how your claim has been handled by your insurance company, you have a few options. First, you should speak to your insurance agent or claims manager to explain your point of view, as they may be able to change your coverage determination. Next, you should call the consumer affairs or complaint department of your insurance company and begin a formal claims appeal process. Also, you should contact your state department of insurance about your claim.

Further, some states have issued or are working on special directions regarding business insurance claims. For example, New Jersey is considering a bill that would force property insurers to cover COVID-19 related business interruption losses. Also, the New York Department of Financial Services directed all property and casualty insurers that provide business interruption and related coverage in New York to send a “clear and concise explanation of benefits” to all commercial policyholders who have incurred or may incur losses related to COVID-19.

 

Possibly. You should collect any and all information you have with respect to your insurance coverage and determine what policies you have in place. Next, you should create a list of losses your business has suffered as a result of COVID-19 and any related shutdowns, and check if your losses are covered by below insurances by reviewing your insurance policies and contacting your insurance agent.

Your losses may be covered by:

1. Commercial Property Insurance Extensions (including specific communicable disease coverage). Some commercial property insurance policies include extended coverage (called endorsements or sub-limited coverages) that will extend that coverage to include damages beyond physical damage to the covered property. This extended coverage may include business interruption losses caused by illness or communicable disease, crisis management costs, cleanup costs, and cancellation of bookings coverage.
2. Liability Insurance. If a third-party is claiming damages related to your business’s actions (or inactions) during the COVID-19 pandemic, you should review your business’s liability policies for related coverage. Below are some examples under typical situations:
   • Faced with claims that your business’s negligence led to the exposure and infection of clients or customers, you should review your commercial general liability policy, if you have it.
   • Faced with claims against you as director or officer and/or your business based on a theory that your business misled investors about its exposure to the COVID-19 pandemic, you should review your directors & officers liability insurance, if you have it.
   • Faced with claims made by employees that are laid off or lose their jobs due to government mandated shutdowns, you should review employment practices liability insurance, if you have it.

3. Workers’ Compensation Insurance. This insurance may provide coverage for claims that an employee was injured by COVID-19. Some states, like California, have issued an order stating that: ”if workers are unable to do their usual job because they were exposed to and contracted COVID-19 during the regular course of their work, they may be eligible for workers’ compensation benefits”.
4. Specialty Coverage. You may have a “specialty” insurance policy that could cover COVID-19 related damages. Examples of specialty insurance policies include: (a) Event Cancellation Insurance; (b) Supply Chain Risk or Trade Disruption Insurance; (c) Travel Insurance; or (d) Political Risk Insurance.
   
   These policies are briefly described below:
   
   (a) Event Cancellation Insurance provides coverage when an event is adversely impacted and cannot occur. Many of these policies have communicable disease or pandemic endorsements that are likely to cover COVID-19-related cancellations.
   
   (b) Supply Chain Risk or Trade Disruption Insurance provides coverage for lost profits and related costs caused by supply chain disruptions. These policies may cover disruption caused by COVID-19-realted pandemics and quarantines.
   
   (c) Travel Insurance may cover employee travel canceled or affected by COVID-19, including potentially the cost of delays and cancellations, hotel fees, lost or stolen luggage; alternative travel arrangements; and travel medical expenses.
   
   (d) Political Risk Insurance provides coverage for losses due to political instability, including potentially import/export embargoes and government shutdowns due to COVID-19.