As 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.
Business interruption or business income coverage is sometimes included in commercial property coverage. For example, many property policies provide insurance for “direct physical loss of or damage” to covered property for certain causes of loss. In some instances, business interruption coverage insures losses to the business for having to suspend its operations. In a typical scenario, when a business’s building suffers physical damage, the business is no longer able to operate normally, and the insurer will pay for loss of business income sustained during this suspension period.
What is less common here is the reason businesses are currently closing their doors—the spread of COVID-19. 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.
But where no such exclusion applies, businesses should consider looking into potential avenues for coverage. For example:
- Under business interruption coverage, “physical” loss or damage does not necessarily require that a physical alteration to the property occur. Instead, it has been interpreted by courts to mean property that has been rendered uninhabitable or businesses that have been rendered incapacitated by, for example, asbestos, toxic gases, or bacteria. Insurers, however, should be expected to take the position that the threat of coronavirus is distinguishable from these other causes.
- Policies may provide coverage for business income loss due to interruptions in the supply chain through contingent business interruption coverage (i.e., customers, suppliers) or dependent property coverage (i.e., manufacturers, locations that accept products). The reason for this interruption must be due to a covered cause of loss.
- Under the “civil authority” coverage, if a government agency prohibits access to the business’s premises, the resulting business losses may be covered. This clause usually requires that a covered cause of loss cause damage to another property within a certain distance from the insured business.
Whether a particular claim is covered will depend on the specific insurance policy terms and facts surrounding the loss. Ultimately, the best way to know if a business is covered for suspending its operations is to have its policies reviewed by an insurance expert.