COVID-19 Claims: Does Business Interruption Insurance Help?

Larry CookClaims, Covid-19 Coronavirus

COVID-19 Claims: Does Business Interruption Insurance Help

How will coronavirus affect your construction business? What should you do next? And will your business insurance cover losses due to coronavirus COVID-19?

With each day that passes, while COVID-19 spreads throughout the country, more businesses are closing their doors to protect their employees, customers, vendors, and other people with whom they come into contact. And many of them are wondering whether there is coverage for their business losses during this time.

The reason businesses are currently closing their doors—the spread of COVID-19—is an unprecedented reason because of its potential scope. Some property policies have “Virus or Bacteria” exclusions, which state that losses caused directly or indirectly by virus or bacterium are excluded from coverage. Others have limited virus coverage subject to certain requirements. The Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 put insurance companies on notice. After Mandarin Oriental International Ltd. received $16 million from its insurers to pay for business interruption losses due to SARS, policies were quickly updated to exclude certain types of disasters — specifically communicable diseases. And the insurance industry began to exclude losses incurred by communicable disease in most policies. The only coverage that pays for such losses are specifically pre-negotiated. But where no such exclusion applies, businesses should consider looking into potential avenues for coverage.

Is Coronavirus Covered by Business Interruption/ Disruption Insurance?

What is business Interruption/ Disruption Insurance?

Most small and medium-sized businesses carry some form of business disruption insurance. This includes coverage in the event of a natural disaster (such as hurricanes) or fire.

Business disruption insurance is typically not a stand-alone policy, but part of an overall comprehensive insurance or property/casualty policy. Depending on the type of policy your business holds, coverage is limited to certain types of disruptions and exclusions. Intended to protect a business against the loss of income related to disasters and other emergencies, business interruption coverage is typically included as part of a company’s commercial property insurance policy, and is most commonly triggered when “direct physical loss of or damage to” insured property occurs during natural disasters, such as hurricanes. Similarly, contingent business interruption coverage can apply to losses associated with other events, such as disruptions to the business’s customers or suppliers, while a policy’s civil authority coverage can be triggered when a government limits access to a specific geographic area, impairing access to the policyholder’s premises.

In the event of claims related to the coronavirus, policy wording is critical, as insurers will contend that the health crisis does not meet the “direct physical loss” requirement contained within many standard policies.

Presenting Your Claim

In addition to determining whether any coverage applies, businesses must also understand the methods employed to calculate the recoverable financial loss. These calculations are highly dependent upon the company’s ability to support the estimated net profits by virtue of historical operations, project forecasts, and other complex financial analyses. With the full impact of the pandemic still unknown, businesses must keep the lines of communication with brokers, legal counsel, and accountants open, and plan ahead to ensure they are accumulating the information needed to submit a well-presented claim.

Business interruption claim determinations turn on the unique facts of each claim, the specific language in the applicable policies, and the law under which those policies are interpreted.  As such, each claim must be evaluated on a case-by-case basis.  Obtain expert assistance when you assess and seek coverage related to COVID-19 claims.