Business Interruption – Coverages & Exclusions

The coronavirus pandemic has left many businesses reeling and attempting to recover from record loss. Business Interruption insurance may be available to cover operating expenses, loan payments, payroll, taxes, and more but other types of policies may also be helpful.

Coverage

Along with business interruption insurance, you may have other forms of insurance added to your policy that could apply to the losses incurred by the government’s regulations throughout the pandemic.

Event Cancellation Insurance

Thousands of events across the country were canceled due to the coronavirus shutdown. Event Cancellation Insurance may be available to cover losses incurred as a direct result of cancellation such as nonrefundable down payments.

A typical event cancellation insurance agreement may say, “We will indemnify you for your loss as a direct result of cancellation, abandonment, curtailment, postponement, or relocation of the insured event to which this insurance applies.” This could be very helpful to many people, however, it’s important to note that this coverage will only apply if it was purchased before the event was affected.

Business Income & Extra Expense

Similar to business interruption insurance, this type of policy would cover business expenses such as rent and payroll as well as income for the policyholder. A typical policy may include verbiage similar to, “We will pay for the actual loss of business income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension may be caused by a loss or damage that is a covered cause of loss in the policy.” This may also include extra expenses incurred during the “period of restoration” that you would not have incurred if there had been no direct loss due to the covered cause.

Civil/Military Authority Coverage

Many businesses did not close their doors due to the presence of COVID-19 but rather to prevent the future spread of the virus; because of this, civil/military authority coverage may be an option when looking to recover lost business revenue. This type of policy will pay for the actual loss of business income sustained and necessary extra expenses caused by the action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property other than at the described premises caused by or resulting from any Covered Cause of Loss.

Courts have held that where access to a business is prohibited by government order, due to a peril insured against by the policy, civil authority is triggered, even when there is no actual physical damage at the insured premises.  For example, in Sloan v. Phoenix of Hartford Insurance Company owners and operators of movie theaters made a claim for this coverage following a curfew ordered by the Governor of Michigan in response to widespread riots.

Communicable Disease & Containment

While definitions and verbiage will vary between policies, a communicable disease is generally defined as a disease that is transmissible from human to human by direct or indirect contact with an affected individual or their discharges. Contamination may also include COVID-19 if the term is not defined, a court may consider it ambiguous and find that coverage is available.

These types of coverage may include:

• Clean-up costs
• Crisis public relations expenses
• Business Interruption losses
  • Inspection and testing may be key in addition to documentation of infected workers

Supply Chain & Trade Disruption

These are broader policies that often do not require physical loss or damage. Supply Chain & Trade Disruption policies are written for businesses that rely upon global supply chains and typically provide protection beyond weather-related events such as:

• Pandemics
• Production process problems
• Civil authority and/or political unrest
• Financial solvency of suppliers

Exclusions

All insurance policies contain exclusions that lay out what will not be covered by your policy.

Common exclusions include:

• Virus
• Pollution/Contamination
  • A term defined to mean an irritant or contaminant, whether in solid, liquid, or gaseous form, including – when they can be regarded as an irritant or contaminant – smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.
  • Usually related to the gradual or repeated discharge of hazardous substances into the environment
• Bacterial
  • Any type or form of fungus or bacteria, including mold or mildew, spores, scents, or by-products produced by the bacteria or fungi
  • Bacteria and fungi are both living organisms

At the end of the day, insurance policies are a contract between the insurance company and the insured entity. While policy language is often ambiguous, courts often interpret exclusions narrowly against the insurance company as it is their burden to prove the facts necessary to establish the exclusion.

Filing A Claim

Policy language may be difficult to interpret but it’s important to remember that there is nothing to lose in filing a claim. However, you may lose your right to coverage if you do not promptly notify your insurer. If you’re having trouble understanding your coverages, filing a claim, or have been denied your business interruption claim contact an experienced personal injury attorney today. Our attorneys at McCoy & Heistand have more than 50 years of experience fighting against insurance companies and are prepared to help you every step of the way, starting with a free consultation.