As efforts to mitigate the COVID-19 pandemic—social distancing, in particular—continue to negatively impact many small businesses, you may be wondering whether your insurance policy covers your losses. Business interruption insurance, in particular, is intended to cover losses directly related to events outside of your control that interrupt your normal business operations, such as natural disasters or vandalism. You may assume that a global pandemic would be a qualifying event, but that’s not necessarily the case.
Your ability to file a business interruption claim depends on the specific language in your policy and several other factors. Insurers have denied many claims stemming from the pandemic, prompting state and federal legislative efforts to compel payouts in a much broader manner. For now, at least until the dust settles, it’s not entirely clear how broadly these insurance policies may be applied.
We’ll answer questions you and other business owners may have about business interruption insurance claims for losses related to COVID-19, including various clauses that may bolster (or diminish) your claim.
Questions about the coronavirus pandemic?
Visit the Coronavirus Legal Center and ask a lawyer today.
What is business interruption insurance and how does it work?
Business interruption insurance covers the loss of income resulting from some kind of unexpected catastrophe that disrupts business, and may also cover added expenses such as having to operate out of a temporary location. Policyholders must file such claims “promptly,” as failure to act fast could result in a denial of your claim.
Your business interruption policy may also include a “civil authority” clause, which covers losses when access to business premises (such as an office, factory, or retail store) is blocked by an order from a federal, state, or local governmental entity. State shelter-in-place and stay-at-home orders meant to mitigate COVID-19 infection rates may apply (however, this isn’t entirely clear in all situations).
Is business interruption coverage included in my policy?
While you may purchase it as a stand-alone policy, most small business owners obtain business interruption coverage as part of a larger package known as a business owner’s policy (BOP). Your BOP will also likely include general liability and property coverage. Your insurance provider can help you determine what is covered in your specific business insurance policy. If you are unsure, you can also ask a lawyer to review your policy.
Why are insurance companies denying business interruption insurance claims related to the pandemic?
There are two primary reasons why an insurer may deny your claim:
- Lack of physical damage to the business. Most of these types of claims pertain to business interruption caused by flooding, fires, and other events of a physical nature.
- Excluded coverage for viruses or diseases. Some business interruption policies expressly state that communicable diseases do not qualify as covered events for the purpose of filing a claim.
A lawyer can help you determine how to make a claim specific to your situation or how to appeal a claim that has been denied.
How have lawmakers responded to these denials?
A bipartisan group of eighteen members of the U.S. House of Representatives signed a letter to insurance industry trade organizations urging their members to more broadly recognize coronavirus-related business interruption insurance claims. The insurance industry insists they’re unable to cover all of those claims and that they would become insolvent if they were forced to do so.
Meanwhile, lawmakers in at least six states (including New Jersey, New York, Pennsylvania, Massachusetts, Ohio, and Louisiana) have proposed legislation that would require insurers to broadly honor business interruption claims for losses pertaining to COVID-19 and social distancing guidelines. A local lawyer can help you understand if there are any new measures passed that would impact your business.
What other financial relief options are available for my business?
While it’s a good idea to pursue a claim for losses if you have business interruption insurance, you may not want to pin your hopes on it. Depending on the size and type of your business and your particular needs, other types of relief may include:
- Paycheck Protection Program (PPP)
- Economic Injury Disaster Loan (EIDL)
- Force majeure contract clause (releasing you from contractual obligations)
You also may be eligible for relief programs at the state and local level. See what government relief you might be eligible for.
Get legal help
If your business is suffering, it’s in your best interests to read your policy and determine what your options are as soon as possible. If you want help from a lawyer, you can ask legal questions and access essential legal documents for free in the Coronavirus Legal Center.