Understanding Business Interruption Insurance
Business owners all over the country are struggling to get by amidst the coronavirus pandemic. Therefore, it’s important to understand the main types of business interruption insurance and what issues you may face when seeking coverage under your policy:
(1) Business Interruption Coverage
Business interruption insurance policies generally provide coverage for lost income and related costs in the event that your business is unable to operate. Most such policies, however, require “direct physical loss or damage” to property for the coverage to apply. Insurers will likely deny many claims based on the fact that the insured suffered no “direct physical loss or damage” to insured property. There will likely be disputes over whether “direct physical loss or damage” might exist when a property has been contaminated by an individual with a confirmed case of infection. If this is your situation, you should consult an attorney to discuss all the facts based upon the specific language in your policy.
(2) Business Interruption Coverage Extension – Civil Authority
The mandatory government orders that non-essential businesses close their doors in order to mitigate the spread of COVID-19 might constitute a civil order prohibiting access to property. Some policies provide extended coverage for loss of business income when an order of a civil authority prohibits access to the property. These extensions usually still require physical loss or damage to insured property, but some provide coverage if a nearby property sustains such physical loss or damage. This coverage may apply, but you will still need to establish “direct physical loss or damage” to property specified in the policy. Again, you should consult an attorney to assess your ability to obtain coverage.
(3) Contingent Business Interruption Insurance
Contingent business interruption insurance policies provide coverage for lost income and related costs caused by business interruptions in upstream suppliers or downstream customers. These policies often require direct physical loss or damage to the property of the upstream suppliers or the downstream customer, which may be a significant hurdle in the COVID-19 situation. Additionally, these policies may require insured parties to list specific upstream and downstream parties and locations, excluding from coverage all those omitted.
(4) Other Endorsements or Extensions
Commercial property insurance policies sometimes has endorsements or extensions providing coverage for business interruption losses caused by illness, communicable disease, crisis management, cleanup, or cancellation of bookings. It is important to read your policy carefully with your attorney to determine if any of the specific provisions may provide coverage for losses related to COVID-19.