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Understanding the Basics of Business Interruption Claims

Mar 24, 2020

Business owners across the United States are experiencing unprecedented challenges as they navigate the uncertainty of COVID-19. With many businesses required to significantly limit operations or even close down for extended periods of time, business owners are left wondering how they can survive the storm. One potential lifeline may very well be hidden inside your commercial insurance package in the form of business interruption coverage. When available, a business interruption claim can be a lifesaver to the business owner, the business, and even its employees.

What is a Business Interruption Claim?

Business interruption coverage is designed to reimburse policyholders for losses incurred when a business is left unable to operate as a result of significant property damage. This coverage also includes loss as a result of a covered peril, such as a hurricane, flood, or fire.  

Businesses that suffer these damages, and incur substantial lost income, may be eligible to file a business interruption claim.  

Will Losses Related to COVID-19 be Covered?

The majority of commercial property policies require direct physical property damage to the business’ premises that causes a “necessary suspension” or “interruption of operation” in order to trigger coverage. In addition, most policies include standard exclusions that remove protections for events that arise directly or indirectly in any way from viruses or bacteria. While it can be frustrating to learn of such exclusions, it may be helpful to understand why they exist. These exclusions are in policies for the same reason that nuclear exclusions exist. It is just simply not possible for an insurance carrier to calculate a premium for an event, such as a worldwide pandemic, that hasn’t happened, and that could be virtually limitless.  

Does That Mean That I Should Avoid All Insurance Coverage?

The short answer is, absolutely not! You should fully evaluate all of your policies to determine the coverages that may be available and what exclusions apply. In addition to business interruption coverages, your policies or commercial packages may include additional coverages that could provide recovery such as:

  • Civil Authority Coverage – provides coverage from losses arising from actions of federal, state, or local authorities that prevent you and your customers from accessing the premises
  • Business Income – provides coverage for loss of revenue resulting from less than a full suspension of operation
  • Extra Expenses – provides coverage for additional costs in excess of normal operating expenses as a result of a covered loss
  • Loss of Attraction Coverage – provides coverage for adverse effects of reservation cancellations or inability to accept reservations or provide accommodations as a result of an infectious or contagious disease, or restricted access as a result of local agency actions
  • Supply Chain Policies – provides coverages for lost income as a result of supply chain interruptions such as the closure of a business’ supplier due to an infectious disease

In addition, there will almost certainly be many challenges of claim denials that are sure to arise in the coming months. As we saw occur after 9/11, there could very well be litigation that opens up coverages initially denied under the terms of existing policies. The case of the French Quarter restaurant in New Orleans is unique in that it directly challenges the exclusions for a viral pandemic. It also seeks a determination that the presence of the virus triggers the property damage requirement of the policy.

What Next?

In the event that your business suffers an interruption or loss of income as a result of the pandemic, or restrictions imposed by civil authorities in response, it is crucial that you provide timely notice to your carrier. You do not have to quantify losses or make a claim immediately, but you should take steps to manage cash flow and mitigate damages during the period of loss, which is a general requirement of commercial policies.  

If you are unsure of how to proceed in terms of a business interruption claim, reach out to your CRI advisor for more information. Be sure to check out CRI’s COVID-19 Resources page for further guidance related to business interruption claims as well as other valuable resources.

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