After months of shelter-in-place orders, closed doors, reduced capacity, loss of sales, etc., business owners are facing the hard reality and long-lasting impacts of COVID-19. If you own a business, it is important to know how business insurance currently responds to COVID-19 related issues.
The business interruption (BI) feature of a property insurance policy responds when a business is inoperable due to physical damage. An example would be a fire claim or structural damage to your building. Disasters of this kind can close business doors temporarily or permanently. To the business owner, this means a loss of income. Some policies also include coverage for civil authority interruptions, which is when a governmental authority orders the closure of businesses. In both cases, claiming income losses typically triggers BI to respond.
Unfortunately, recovering COVID-19 losses under a business insurance policy right now is tough. It is very unlikely that insurance carriers will qualify COVID-19 BI losses as caused by physical damage or a civil authority claim. Some business owners have already received declination letters from their carriers. Physical damage requires direct physical damage to the property and many insurers are standing firm, taking the position that direct physical damage does not exist under the current circumstances. The courts are a long, long way from resolving this issue. It will take years. In addition, some BI policies have a standard virus exclusion that may also exclude coverage. Claims based on civil authority are also being declined because police have not physically closed off spaces, which is typically required for a successful recovery outcome under this coverage.
Although insurers are not likely to change their policies to cover COVID-19 related BI losses, history shows that governments and courts have not hesitated to force insurance outcomes in extraordinary circumstances. One example is terrorism coverage, which did not even exist before 9/11. Many states have introduced new legislation that would force insurers to retroactively cover COVID-19 related business interruption claims expressly excluded or uncovered. Some experts are suggesting that a type of federal government involvement may be the most logical solution. Covid-19 impacts every business and insurance companies will go bankrupt if they are forced to cover all potential demands for payment.Some agents are telling clients to not bother making a claim and are creating the fear that the claim will raise insurance rates. However, in a claim scenario, time matters. You may have a deadline to report your claim within a certain window and the clock starts running as of the date of damage. A phone call to your insurance provider along with a follow up email to document the call with a copy to your agent is recommended. If you should decide to file a claim, anticipate that the insurance company may be more oriented towards denial. However, the likelihood of a successful result will be increased when you have a good understanding of your policy and submit a claim through that agent on a timely basis.