Business Interruption Insurance & COVID-19
Not only is the novel coronavirus risky to some segments of the human population, but it is also causing significant issues to businesses in the United States and around the world. States have closed schools, required “non-essential businesses” like retail stores to close and limited restaurants to take-out or delivery services only. Now, not only are people worried about the virus itself, they are concerned about their financial future. Business owners are faced with being unable to pay employees as no revenue is coming in to cover their costs. One way to cover these costs is through business interruption insurance. First, it is crucial to know how this type of insurance works and how to tell if your policy includes this type of loss.
What is Business Interruption Insurance?
Interruption insurance for your business replaces income that you lose due to terrorism or a disaster. This disaster could be fire, earthquake, hurricanes, tornadoes, or something else that is deemed a natural disaster. In most cases, this type of insurance is included in your property/casualty policy or a comprehensive package policy as an add-on or rider. Typically, the coverage is for lost income related to damage to your property, damage to the property of a customer or supplier, government actions, or damage to properties that attract customers to your business. In most cases, unless you suffer property damage, your insurance will not cover the losses.
Coronavirus and Property Losses
When it comes to COVID-19, the main question is whether the presence of the virus can cause or be deemed as property damage and whether that damage played a role in the loss of income. There have been no reports of the virus damaging physical property as it is transmitted through the air or by someone touching an infected surface. It can be present in buildings, on mass transit, as well as on surfaces both indoors and outdoors. Some courts have found the presence of a harmful substance may constitute property damage which may trigger insurance coverage. In one case, ammonia released into a facility rendered the building unsafe. The court ruled that even though there was no structural alteration, the property sustained physical damage. Therefore, courts could rule that the virus has caused property damage even though no physical damage occurred.
What Does Business Interruption Insurance Cover?
Insurance that covers you after your business is interrupted covers the following items:
- Civil Authority Ingress/Egress – If you suffer losses because the government required your business to be closed, there were government-issued curfews or streets were closed due to an event, those losses may be covered.
- Commission and Training Costs – During this interruption, new machinery may need to be installed, which requires you to train employees on the new machines.
- Employee Salaries – To keep employees, you may want to continue paying them during the shutdown. Interruption coverage will help you continue to meet payroll when no income is forthcoming.
- Extra Expenses – If you incur additional expenses beyond fixed costs due to the interruption, the insurance will cover those costs.
- Fixed Costs – Your business has operating expenses and other costs that do not fluctuate but are necessary to operate your business. These are also covered.
- Loan Payments – Even though your business is shut down, you must still meet loan payments, which are ordinarily due monthly. Insurance can help you cover those loan payments until your company can reopen.
- Profits – Using performance information from prior months, you may be able to receive reimbursement for profits that you have lost that will not be recovered after you reopen.
- Taxes – Your taxes will still need to be paid even during a disaster. Tax coverage can help you avoid penalties during the shutdown.
Contingent Business Loss
You may suffer what is known as a contingent business loss. This is caused by damage to a supplier or customer. Many businesses around the world have reported the loss of suppliers and customers. As COVID-19 spreads, more customers and suppliers could be affected, leading to even more losses. In addition, there are other contingencies that could lead to losses for your business beyond suppliers. If public transit closes, customers will not be able to get to your business location. If you are in the travel industry, the fact that cruise ships or airlines have halted travel could be considered a contingent loss. The closure of public gathering places may also trigger coverage under “civil or military authority.” Ordered closures could trigger the “leader property” clause in your policy. For example, the closing of a local amusement park could allow hotels in the area to claim damage to a “leader property.”
Broad Exclusions in Coverage
It is important to read your interruption insurance policy carefully. Some policies have broad exclusions regarding biological agents, which may include COVID-19. Other policies may expressly provide coverage for damages caused by disease, although some offer coverage for bacteria and not viruses. Policies also may have sublimits on coverages, while others may have waiting periods before you can seek coverage. In addition, the policy may state that insurance is only available during the time necessary to repair the damage. Because COVID-19 exists for a short time on surfaces and quick cleaning eliminates the danger, the period of recovery could be limited. An argument could be made, however, that the virus persists in people, which could result in quick recontamination.
If your business has been closed due to COVID-19 and you want to know whether your business policy covers your losses, the best thing to do is to contact a Joplin lawyer. Hershewe Law has been offering legal advice in the Four-States since 1977. We are available 24/7 and can even come to you in your time of need. We are honest, trusted, and service-oriented. If your business has been slowed or shut down due to the coronavirus (COVID-19), schedule a FREE consultation with a member of our experienced team. Please contact us at 417-999-9999.