Business interruption insurance is a major topic of discussion right now because of the coronavirus pandemic. Businesses are facing tremendous losses both because of the direct effects of the virus and because of mandated shutdowns.
That has left many turning to their business interruption coverage to help offset their losses, yet they’re finding no help in many cases.
The refusal of business interruption insurance companies to cover claims is also sparking a surge in lawsuits, but it’s unclear whether any of those will hold up in court.
It is an unprecedented situation primarily because we haven’t ever faced a situation of this duration before.
So what should every business know about business interruption insurance and its limitations?
An Overview of Business Interruption Insurance
Under more typical circumstances, if a business has to stop operations for a period of time or they operate at a reduced capacity, it’s due to something more like a natural disaster or perhaps a man-made situation.
For business interruption insurance to cover losses, usually, there has to be physical damage to the business property itself.
Business interruption insurance is often added onto commercial property insurance policies, or included in a commercial package policy.
Interruption insurance may cover lost revenue, payments for rent and leases, mortgage payments, taxes, and loan payments. Employee payroll can be covered, as can coverage for the costs of relocating permanently or temporarily.
Business interruption insurance doesn’t usually cover an infectious disease, which is of course, what we’re dealing with when it comes to coronavirus. Even so, businesses have been surprised to find that out fairly recently.
While business owners are figuring out that technically their business interruption insurance doesn’t cover their losses from coronavirus, some states have said they’re going to step in.
States include Louisiana, Michigan, New Jersey, New York, Ohio, and South Carolina.
A hurricane is a good example of something most often covered by business interruption insurance because it causes physical damage, which, again, is traditionally what business interruption is for.
Fires and natural disasters aside from hurricanes may lead coverage to kick in too.
What’s Not Covered?
While the specifics of a business interruption policy depend on the policy itself and the insurance company, some of the things usually not covered include:
- Earthquakes—you would usually need to have a separate earthquake policy or addendum for coverage.
- Acts of war
- Strikes, civil unrest, and riots—this is another issue a lot of businesses are facing right now.
- Political violence
- Smoke damage
- Broken glass
- Viruses or biological agents
Recent Court Rulings on Business Interruption Insurance
There have been at least two rulings about COVID-19 and business interruption insurance. In both, the judge sided with insurance companies.
The first was Social Life Magazine v. Sentinel Insurance Company. In this case, a judge in New York’s Southern District denied the magazine publisher’s request for an injunction that would force its insurer to cover losses from mandated closures.
In that case, the ruling was in favor of the insurer, but it only found the publisher would be unlikely to win under New York state law.
The second case was Gavrilides Management Company et al. vs. Michigan Insurance Co., and here the judge in Michigan ruled the insurance company wasn’t responsible for financial damages because there was no physical damage to the properties in question. The plaintiff was a restaurant owner who said the civil authority provision of the policy should mean his losses were covered.
The plaintiff also argued the exclusion of viruses named in his policy should be void because of its ambiguity.
What If Your Insurer Won’t Pay?
So what should you do if you’re a business owner and your insurance company won’t pay?
There aren’t a lot of options for past issues. You can speak to a lawyer and get their take, but beyond that, be forward-thinking as well.
For example, there are new products coming out that will protect you in the specific case of things like what we see right now.
As an example, there’s a relatively new product called Marsh. Payouts are linked to a certain trigger, such as the closure of a certain type of business all within one zip code. The limits tend to be lower, but if all criteria are met, payments can be instant.
Overall, if you’re a business owner, you may very well find that your current business interruption insurance excludes the hardships you’re currently facing. It’s important to use this time to re-evaluate your insurance products and make sure they really are covering what your business most needs.