As a business owner, especially with the losses that COVID-19 has caused, it is likely that you have heard of business interruption insurance. This is a type of insurance that can cover business income loss suffered if your business is forced to shut down for a period of time. It may cover operating expenses such as revenue lost, rent, lease, or mortgage payments,; loan payments, employee payroll, taxes, and more.
Many businesses across the U.S. have had to close or limit their operations because of the pandemic. If you are a business owner or leader, you are probably wondering whether business interruption insurance would cover any losses that are a direct result of the coronavirus shutdown. Many insurance companies claimed the coverage was only good when a business had to close due to direct physical damage to the covered location, but some business owners have argued that it should cover infectious disease closures as well. Many business owners also believed that civil authority (e.g. Governor mandate) coverage should help with the loss because this type of insurance covers losses caused by forced closure of a business by civil authority.
The Limitations of Infectious Disease Coverage
The pandemic and closures that resulted due to the COVID-19 virus have created an unprecedented situation and affected the livelihoods of many. While business interruption insurance policies may provide vital financial aid in many situations, there are virus exclusions. Multiple lawsuits have been filed against this opposition of coverage to seek solutions to the dire situations many businesses are facing. The coverage is also being addressed at a state level. Many states, including New York, New Jersey, and Missouri, have already proposed legislation that would force insurance companies to shoulder a large portion of the burden that businesses have suffered due to the pandemic and shutdown.
The regulatory measures focus on business interruption coverage recognizing that this type of coverage typically only covers loss of use due to physical damage to covered property such as earthquakes or fire and are not applicable for losses caused by infectious disease, including those during a state of emergency. The proposed legislation would require commercial property insurers to provide coverage for losses caused by the pandemic regardless of typical policy language exclusions or the lack of physical property damage and would also provide for retroactive coverage.
We understand the reaction from the insurance industry has not been entirely optimistic, but we at Conover want to do everything we can to help you find alternative solutions to business interruption insurance.
Take Proactive Steps to Protect Your Business
While it is highly likely that business interruption insurance coverage will not cover losses due to the pandemic, there are a few things you can do to protect your business now:
- Mitigate as Many Losses as You Can – Try to be proactive about protecting your small business from future business interruption losses. For example, if you have customers that visit your business, create a plan to reassure them that they are safe on your premises. Restaurants can focus their efforts on delivery and takeout orders. If you are dependent on a supplier for your products, try to find alternative suppliers just in case one supplier cannot meet your needs.
- Stay Informed on New Updates – The laws are developing and changing on a state and federal level. Stay up to date on the latest restrictions and regulations so you can make sure that you are in compliance. You will also want to stay informed of litigation on whether a business interruption insurance policy will actually pay for claims related to COVID-19 or not. As the court system considers whether insurance companies will have to honor claims, it is important to file any insurance claims you may have to establish your business’s right to contest the claim as this legal landscape changes.
- Consider Unemployment Claims – Think about whether you should file at least partial unemployment claims for any employees that have had their hours cut. See if there are laws specific to your state. As a general rule, workers’ compensation policies will cover occupational diseases and injuries but don’t typically cover contagious diseases that are incurred outside of healthcare occupations. However, the requirement that the disease “arose out of unemployment” may be a determining factor in coverage. In addition, many states have already put into motion plans to extend unemployment benefits to cover COVID-19 losses.
- Keep a Record of Everything – Now is time to build your case. The success of any case depends on your ability to document why you believe you have been wronged. When it comes to a business interruption claim, you will need to be able to document the impact that COVID-19 has had on your business. Document any losses that you believe are specific to the pandemic and exclude any other cause of action. Be sure to include any loss of income (your policy will define this), incremental extra expenses that you have incurred such as cleaning services and additional security, and customer attrition rates. Additional information to gather and have ready may include current and historical annual financial statements, monthly profit and loss information, state and federal tax returns, payroll records, inventory, purchase order and invoices, and documentation to support any additional expenses related to losses caused by COVID-19.
- Review Your Current Coverage – Gather your current property insurance policies and review them to familiarize yourself with the coverage. Review it in detail and pay close attention to policy exclusions, disclaimers, and limitations as well as the types of losses covered. Policyholders may want to ask an attorney to review your policy because the language can often be confusing. Determine what your notification period is and ensure that you submit your claim on time. Document your compliance in your records.
Get a Second Opinion
While businesses and insurance companies continue to navigate the pandemic, the one thing we have seen from initial court rulings is that it is important to establish a direct physical loss for a business interruption claim. Whether or not that will eventually include losses covered by COVID-19 is yet to be determined. However, if you submit a claim under your business interruption policy and initial reviews suggest that insurance coverage for your losses is unlikely, don’t be afraid to get a second opinion. Whether that second opinion is from an accountant to quantify the loss, another insurance broker, or a law firm that can lead you through the terms of your policy.
If you don’t already have a business interruption policy, you should consider purchasing one now. While it may not help you offset the costs of the pandemic, it could protect you from other future losses down the road. Keep in mind how much coverage would be appropriate for your business and make sure you know exactly what will or won’t be included in your policy, including pandemics.
At Conover Insurance, we would be happy to have one of our independent advisors review your existing insurance coverage. While we can’t promise that we’ll be able to find a magic loophole in your favor, we will advocate for you and do our best to find solutions. Contact us today for a free review.