Business Interruption Insurance and Covid-19: What to Know

Covid-19, also known as the novel coronavirus, has shifted the world as we know it. Since covid-19 was a new virus, the world took drastic steps to reduce its transmission while we worked to learn more about the contagiousness of the virus, the lethality, and how to best control it. 

As most other countries in the world did, many states closed down non-essential businesses, and they’re just starting to reopen, although they’re still far from a sense of pre-coronavirus normality. 

In some states, there isn’t yet a reopening of most non-essential businesses. For example, in California, there is just now starting to be a reopening of retail stores, and most can only open for curbside delivery or by appointment. 

Having to close down has left businesses struggling, even with the major financial stimulus at the federal level. Many businesses paid for insurance policies to provide them with coverage during this time in the form of business interruption insurance, yet their insurance providers aren’t paying out on the claims. 

When a business doesn’t receive a payout on a business interruption claim, they may have to take legal action. 

Along with insurers refusing to pay, some businesses aren’t even aware of what type of coverage is available through their business interruption policy. 

The following are some of the major things to know, as businesses work to recoup the losses they’ve faced during covid-19.

What Is Business Interruption Insurance?

Business interruption insurance is also called business income insurance. 

Business interruption insurance is a type of policy that covers lost income businesses face following a disaster. The income loss covered by these policies may be because the business had to close as a result of the disaster, or through the need to rebuild following said disaster. 

It’s a separate type of policy from property insurance, which is for physical damage that may occur to a business. 

If you had a business in California, for example, and there was an earthquake, your property insurance would likely cover the damages to your building. Then, business interruption coverage would be available for the loss of profits that you would have earned without the disaster. 

There is usually a set of standard conditions that have to be met to recover losses through your business interruption insurance. This includes physical damage to insured property that is caused by a covered “peril.” 

The result would need to be a quantifiable business loss during the time it would take to restore the property damage. 

Are Covid-19 Losses Covered?

Here’s the big question for businesses right now—are covid-19 losses covered?

The answer is sometimes yes, but it depends on the language of your policy. 

For example, the physical element of this disaster could be considered the fact that shelter in place orders have prevented you from entering your business.

There are some policies that also specifically include language for business interruption that occurs because of a communicable disease. At the same time, some policies specifically exclude viruses, bacteria, or diseases. 

While there are situations when business interruption should provide coverage for covid-19, based on the language of your policy, this isn’t universal. 

There may also be business interruption policies that require your business to be closed for a certain period of time before you’re covered. 

Civil Authority Coverage

There’s also something called civil authority coverage.

This is perhaps, in some cases more relevant right now than business interruption insurance. 

Civil authority coverage provides coverage for a loss that comes from restrictions on access to your business because of civil or government authority. 

Civil authority insurance may be part of your property insurance policy. 

Class Action Lawsuits 

There have been several class-action lawsuits filed against different insurance companies recently because the plaintiffs say their claims were denied due to covid-19 closures. 

Insurers named as defendants include Aspen American Insurance, Auto-Owners Insurance, Oregon Mutual Insurance, and several others. 

Some of the plaintiffs include restaurants, nightclubs, retailers, and a dental practice. 

The law firms representing the plaintiffs in the lawsuits say that their clients purchased property insurance coverage to protect themselves against disruptions to their businesses that were not in their control, including policies with business income coverage. 

The firms said that the coverage either included or did not specifically exclude losses related to a viral outbreak. 

Even so, the law firms said the insurance companies refused to uphold their responsibilities.

The legal representatives for the clients said that businesses around the country have paid for expensive insurance policies for years, to protect them against the things that are happening now. 

They also pointed out that most property insurance policies in the U.S. are all-risk. 

What If Your Insurer Denies Your Claim?

So what should you do if you’re a business owner and you think you have a legitimate claim, but it’s denied?

You do need to keep in mind that it’s common for insurance companies not to honor the polices they’re in. They may refuse to pay out unless they’re legally ordered to, so know that just because your claim is denied, it doesn’t mean that your claim isn’t covered. 

If you think there’s even a  chance that your insurance company is wrongly denying your claim, you may need to speak to a lawyer. 

You should get a copy of your insurance policy and declaration page because this will help you understand what’s covered and what’s not. 

You also have a specific window of time where you can report your claim, which is usually 60, 90, or 180 days. This time starts running out as soon as the date of damage occurs. 

You will need to have documentation proving your loss as well. For example, this could include documentation that shows your loss of sales, the additional expenses, and documents that show your typical business cycles and sales trends. 

Finally, you might need to show that you attempted to mitigate your losses as much as you could—for example, by remaining open even if in a limited capacity.