Are COVID-19 Business Losses Covered by Insurance?
Since the beginning of 2020, a lot of industries have taken a big hit financially. At the moment, a lot of business owners are trying to figure out the best path forward. There has been a lot of discussion around the stimulus package and the Paycheck Protection Program, but less discussion around insurance policies; specifically, business interruption insurance.
What is Business Interruption Insurance?
It may also be referred to as Business Income Insurance, but it's typically an add-on to your property insurance policy and is designed to cover loss of business income due to a covered peril (eg. fire or some form of natural disaster). Each policy is different in terms of what is covered, under what circumstances coverage is applicable, and for how long. Your policy may even include a clause for “Civil Authority Coverage”, which are situations when state legislation requires that non-essential businesses close—something we're all very familiar with at this point.
Does Business Interruption Insurance cover COVID-19 losses?
Generally, these policies require some form of “physical damage”, so a lot of insurers are NOT paying for Coronavirus-related claims, due to the fact that the pandemic didn’t include “physical damage.” Furthermore, some policies actually contain a “virus exclusion”. This became more common after the SARS outbreak in 2003, but that doesn't mean that a claim is completely off the table. Some state legislators have actually put bills in place that would require insurance companies to pay out Coronavirus-related claims, even if there was a virus exclusion in the policy. Some of those states are Louisiana, Ohio, Pennsylvania, New Jersey, New York, Massachusetts, and South Carolina. If you reside in one of these states, a claim for Coronavirus-related losses may be an option for you.
What Can You Do?
If you're in a situation where you've had business losses, the first thing to do is to check your insurance policy and see what qualifies as a “cause of loss”. Check to see if there is a virus exclusion in there. If there is not, it may be worth filing a claim or talking with your insurer. If there is a virus exclusion, then stay up-to-date on local legislation and see if any bills or provisions are coming out that may help you in that area.
A lot of small businesses are actually taking insurance companies to court over this (in which some business are actually winning). Insurance companies are arguing that if they paid out all COVID-19 related claims, then the whole industry would go bankrupt. So this isn’t a clear-cut issue, but the best thing you can do right now is check your policy and stay informed on what's happening in your state specifically.
There is a bill being proposed at the Federal level; it's called The Business Interruption Insurance Coverage Act of 2020. This bill is currently pending in the House Committee on Financial Services, so we'll see if that ever moves forward. Essentially, this would require insurance companies to allow for the coverage of pandemic losses under the policy, for an additional premium. Unfortunately, this probably wouldn't help anything COVID-19 related, but as we've heard before, this probably won't be the last pandemic that we'll experience, so it's something to consider moving forward.
Summary
Whether or not business interruption insurance can help you today is really dependent on your policy and your state, so check both of those things. If nothing else, 2020 has taught us that we should be hoping for the best, but planning for the unexpected. So if and when we encounter a situation like this in the future, a business interruption insurance policy may help you cover some business losses.