What is Business Interruption Insurance? Comprehensive commercial property insurance policies typically contain a provision giving the business owner some protection for its losses when the business is unable to operate and faces losses due to an external event like power loss, hurricane damage or a fire. This coverage is commonly referred to as business interruption insurance (BI Insurance). Our clients understandably want to know if their package of business insurance addresses their losses sustained because of the Corona virus. Although the answer is probably not, each policy should be reviewed carefully.
What is – and is not – covered? BI insurance typically limits coverage to physical losses to property from a covered cause. The direct physical loss requirement presents the first hurdle for losses due to a shutdown in the fallout of a pandemic. Simply said, the virus is not causing a direct physical loss to property in the common use of those words. In some policies, the second hurdle is a specific exclusion of any loss or damage caused by any virus that induces physical distress, illness or disease. Massachusetts commercial property policies can have such a specific exclusion.
Are there exceptions to exclusions? Faced with these requirements and the magnitude of the coming losses, there have been published reports of state legislatures proposing laws that would limit or bar the effect of these exclusions; reports of a Congressmen writing to business insurers asking for relief from these policy requirements (emphatically refused); and of a restaurant in New Orleans filing suit to declare that its losses were sustained due to an order of civil authorities (which can be a covered cause) not the virus itself. These efforts illustrate understandable push back against the insurers’ policy exclusion language during a pandemic, but whether any will be successful is quite uncertain.
There may be some avenues to some coverage even within the typical BI policy exclusions: These policies may afford coverage for losses due to a forced closure of a dependent property – like an important supplier – which has been ordered closed by a civil authority, interrupting the insured’s own business from operating. But there are tight policy restrictions on this type of claim, e.g. that the affected property must have been scheduled on the policy when it was written.
What can I do to be proactive? BI claims due to the pandemic are sure to come and the law will develop. To be proactive, have your policy reviewed by a specialist; be alert to any action being taken by your trade association; or the filing of a class action suit attempting to impose coverage after the fact. Discuss with your agent or broker the pros and cons of putting your BI insurance carrier on notice of your expected losses due to the interruption of your business. Don’t expect a welcoming response, at this stage but it seems wise to put the insurer on notice, even in the face of the coverage exclusions and unknowns.