To counteract the spread of COVID-19, on March 17, South Carolina governor Henry McMaster issued orders suspending dine-in service at all South Carolina bars and restaurants and prohibiting public gatherings over fifty people.
It goes without saying that such measures, while important, are putting a serious strain on South Carolina businesses, particularly those in the hospitality and tourism industry. If the issues with COVID-19 persist, the stress on frontline businesses will make its way upstream and cause problems for businesses in other industries, like commercial real estate and banking.
While the government is aware of these issues and is working to limit the damage, relief for some businesses could come instead from their business interruption insurance. Business interruption insurance typically covers the loss of income that a business suffers after a disaster, like a hurricane or fire. The good news, however, is that some business interruption policies also cover losses attributable to government actions that interrupt or cause operations to cease completely. If applicable, such policies generally cover, among other things, lost profits, fixed costs, like rents, and employee wages.
But unfortunately for some business owners, there may be obstacles to collecting under such policies for COVID-19 related losses. Though every policy is different, a standard business interruption insurance provision provides:
We will pay the actual loss of Business Income you sustain due to the necessary suspension of your “operations” during the “period of restoration.” The suspension must be caused by direct physical loss of or damage to property . . . . The loss or damage must be caused by or result from a Covered Cause of Loss.
Coverage under these policies is contingent on a “direct physical loss,” which generally means that the insured must demonstrate that the property in question suffered some physical change or alteration that interrupted or halted business. An executive order like Governor McMaster’s that bans dine-in service and large gatherings probably would not fit this definition. Moreover, some policies explicitly carve out pandemic-related losses, although losses suffered because of an executive order in response to a pandemic may not trigger this exclusion.
Though business interruption insurance is not a cure-all, it may help some businesses stay afloat during the uncertainty caused by the COVID-19 outbreak. It is worthwhile to take time to review your insurance policies to determine if you might be eligible for coverage.