Business Interruption Insurance and COVID-19

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Business Interruption Insurance

Some businesses carry “business interruption” insurance, which is designed to provide protection in the event that the company can stay in business even if its business operations are interrupted. When it comes to business interruption insurance and coverage for losses as a result of the impact of COVID-19, policy language is critical, both as stated in the policy and as defined by the policy.

First, the not so great news. A majority of such policies will only cover loss of profits as a result of the “physical loss” of property or “damage” to property.   That may apply to some businesses, but a vast majority of expected COVID-19 claims would appear to be as a result of other impacts of the virus such as restrictions on staffing, operations, product supply and customers. Court determinations as to what is considered a physical loss is not unique to COVID-19, but it is safe to assume that some demonstration of direct contact between the virus and the insured’s property would be necessary for any claim. 

Extending that burden to then proving actual damage to the property further complicates matters. Specific to COVID-19, the burden on the insured is to demonstrate the physical connection of an invisible substance to the insured’s property which then caused what’s likely to be invisible damage. It’s a potentially daunting task.

Consider additional issues with deductibles, the number of occurrences, how damages are calculated, how damages are corrected, an insured’s own negligence as a contributing factor to the damage and endless other opportunities for denial of coverage or reduction of policy limits, and there exist many obstacles.  It is also common for policy language to specifically exclude damage from “viruses” and “bacteria.”

In addition to general policy coverage, businesses must closely examine all extensions of coverage that may apply to more indirect losses of property. Although this coverage often still requires physical loss or damage, the move from direct to indirect losses may make a difference to an otherwise excluded claim.

Some policies contain contingent business interruption provisions intended to cover a company’s loss of business in the event that the insured’s customer or supplier suffers a physical loss or damage.  These losses may be much more relevant to those seeking coverage due to COVID-19 related events. The catch is that the supplier’s loss and damage typically must also be as a result of physical loss or damage from COVID-19. With the burden on the insured, obtaining sufficient evidence of the physical loss or damage might be difficult unless the supplier has already gathered such proof and is willing to share that information with the insured. 

So, while there are insurance policies that may cover some COVID-19 related business losses, coverage will depend on specific policy language and the interpretation of that language. 

If you have business interruption insurance and have questions about coverage, we are here to examine your policies and fight for coverage and benefits.