Can insurance cover against COVID-19 business outages?
It may depend on politics, the courts, and even the state legislature
Business interruption insurance provides protection for companies from financial loss when they are unable to operate. In the past year, the COVID-19 outbreak has raised questions about whether this coverage includes the losses associated with the pandemic. The short answer is that it depends on the terms of the policy and how the insurance company interprets it, and possibly the courts. Some state legislatures are also involved.
Main gaps
. Business interruption insurance is intended to help offset the loss of income when operations are temporarily stopped due to a covered event.
.Unless a business boycott policy specifically lists epidemics or infectious diseases as covered, it may not be covered.
.Some states have introduced legislation that would retroactively apply business insurance coverage to epidemic-related losses.
Business interruption insurance: what is covered
Business interruption insurance policies can help a company stay afloat if it has to shut down temporarily. The policies provide income replacement that can be used to cover day-to-day operating expenses and overhead costs so the business can reopen. The National Association of Insurance Commissioners estimates that 30% to 40% of business owners have some form of business interruption coverage.
Business boycott policies are generally used by small and medium-sized businesses. According to the Insurance Information Institute, companies with 100 employees or less and revenues of $ 5 million or less are good candidates for coverage.
A typical business interruption policy will include coverage of property, liabilities, and business income. So you are covered against losses due to damage to your business property or contents arising from a covered risk, as well as personal liability or loss of income claims if the business is to be temporarily closed.
Covered or named risks depend on the terms of the policy, but may include:
. Fire losses
. Damage caused by wind or falling objects
. Lightning damage.
. theft
In general, damages due to riot, vandalism, or civil unrest are covered by business interruption insurance policies as well, unless your policy specifically excludes these events.
Important: Damage related to floods, earthquakes, or mudslides may not be covered under a standard business interruption insurance policy.
Securing business interruptions and epidemics
The coronavirus pandemic has dealt a major economic blow to many business owners. According to Yelp data, more than 160,000 companies were closed due to the pandemic until the end of August 2020. Among those closed, nearly 60% were not expected to reopen.
It is not always clear whether business interruption insurance applies in this case. But in general, unless the policy specifically lists coverage of epidemics or infectious diseases, those events may be excluded.
This means that if you are running a business that is temporarily closed due to a pandemic, either due to government-imposed lockdowns or out of extreme caution, any loss of income you experience may or may not be covered by your policy. As a first step, it is helpful to review your policy and verify this with your insurance agent.
judicial intervention may be necessary to determine whether epidemic losses are to be covered. Few lawsuits have been filed regarding coverage of business interruption and the coronavirus epidemic, but the rulings have been mixed, with some decisions in favor of business owners and others besides insurance companies.
Several states have proposed legislative measures to address epidemic-related losses and business interruption insurance coverage. As of August 2020, 10 states, including California, New Jersey, and New York, have drawn up legislation requiring insurers to pay back business interruption losses due to the coronavirus lockdown. Federal lawmakers have also discussed measures related to business interruption insurance to help offset losses incurred by companies that have had to close, but no final legislation has yet to be implemented.
Noticeable
Business interruption insurance doesn't usually cover losses related to a utility suspension unless you purchase authentication or add-ons.
Managing pandemic-related losses due to business interruptions
If you run a business affected by the Coronavirus or other viral outbreak and have business interruption insurance, see your coverage. Specifically, check your policy formulation to see if epidemics are explicitly included or excluded.
In cases where epidemic coverage is unclear, you can contact your insurance agent or company directly for clarification. If you are covered, you can then ask about the next steps for filing a claim under your policy. This may require you to provide details about your losses, along with supporting documents explaining how much your business has incurred financially as a result of the pandemic.
If your insurance company cannot provide a satisfactory answer, you may need to speak with an attorney to discuss whether filing a lawsuit is necessary or advisable.
In the meantime, there are some other things you can do to mitigate the financial losses associated with the Coronavirus pandemic. It includes:
. Review your business operations to look for alternatives that can help you stay open and serve your customers while keeping social distancing and other safety requirements in mind.
. Examine your business budget to cut costs as much as possible and consider a short-term salary cut to reduce operating costs.
. Keep up with the latest state and federal legislative efforts to help companies struggling with pandemic-related losses.
. Document any losses you incur as a result of the pandemic, including those related to property damage, liability claims, or reduced income.
. Consider financing options, including government-backed loan programs as well as loans from your bank or online lenders, to help you stay financially standing until the business booms.
Noticeable
If you have business interruption insurance, your policy may require a waiting period of 48 to 72 hours before the recovery period begins. The recovery period is the period of time your policy will pay for lost income and other damages.
The bottom line
Business interruption insurance is something that business owners might consider buying now if they don't already have them. Although it may not help you offset any financial losses related to the coronavirus pandemic, it may be beneficial to cover your business against losses in other situations covered down the road. Before purchasing an insurance policy, consider how much coverage is right for your business and compare rates from the best business interruption insurance companies. Also, make sure you know exactly what will or will not be covered, including epidemics, before finalizing your policy so that there are no unhappy surprises later.
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