Recent studies show that one third of small business owners in the United States carry some form of business interruption coverage. This insurance coverage is designed to protect you and your business from any losses to business you may have. Most small business owners in America have lost money (and have been forced to reduce staff) as a result of COVID-19. If you have a policy, it probably seems pretty simple: my business was interrupted, therefore I’m covered. Unfortunately, it’s not that simple.
Check the language of your policy
One common limitation under business interruption insurance policies is a requirement that the business interruption be caused by “direct physical loss or damage to property at” your business’s premises. Does COVID-19 qualify? On the one hand, there isn’t a traditional direct physical loss – like storm damage – at the premises. On the other, a policyholder can argue that their property was, in fact, damaged; the fact that the business’s property can serve as a host for the virus means that that property was damaged. Who wins? At least one court will decide that issue, but there are cases that suggest that direct physical loss requires distinct and demonstrable physical damage, and not just the adherence of molecules to a surface.
Check your exclusions
Many insurance policies – particularly complex commercial policies – contain exclusions that limit coverage. One fairly common exclusion is an exclusion for viral or bacterial pandemics. For example, your policy may say that it does not cover “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” If your policy contains such an exclusion, your fight for coverage just become much more difficult.
Can’t I argue that the Government – and not COVID-19 – made me shut down?
Again, it’s important to check your policy’s language; many policies contain language that provides coverage for an “action of civil authority that prohibits access to” your business. However, many of these policies are limited to “covered” causes of loss, or similarly require “damage” to your property. Again, under this claim, you’d likely be fighting the same battle you fought above. Further, civil authority coverage also requires that access to the area immediately surrounding your business be prohibited; if you are a restaurant still open for carry out, can you also argue that access was prohibited?
What does this all mean?
In short, policy holders seeking to make a claim under a business interruption policy will face several hurdles before their losses are covered. But several policy holders have already filed claims, and many more are certainly on the way. But before you decide to bring one, it will be important to review your policy to determine the specific language and exclusions that it contains.
