Business Interruption Insurance and Coronavirus
Business interruption insurance, also called business income insurance, is a policy that covers loss of income (and expenses) due to a disaster, forcing the company to vacate its premises.
As the current coronavirus pandemic spreads, it’s important to find an insurance company that can help you find the best coverage for you and your business during this time.
How Does It Work?
Many businesses take out insurance to cover damage(s) from specific natural disasters, but fail to consider a situation of such gravity that their business premises become unusable altogether. That’s what business interruption insurance is for. Typically, it’s an extension of a property insurance policy or included in an insurance package as an extra line of defense.
Business interruption insurance is not sold separately.
Common Perils Where Business Interruption Insurance Can Help
The Federal Emergency Management Agency (FEMA) released an infographic stating that 40-60% of small businesses never reopen their doors following a disaster. Of those that do, 90% fail within a year unless they can resume operations within 5 days. Trying to pick up the pieces without the help of insurance is difficult, and the pressure to reopen your doors immediately adds to the situation—making it seem beyond your control.
Most business interruption insurances kick in after the following perils:
- Natural disasters – Destruction caused by natural disasters like wind, hail, snow, or fire
- Anthropogenic causes – Damage caused by things like theft or vandalism
- Accidents – Disruption caused by mechanical breakdowns or falling objects
Exactly How Business Interruption Insurance Helps
Like all insurance policies, the exact coverage and financial support differs depending on which business interruption insurance you have. Other variables include coverage limits, period of restoration, and of course, actual losses sustained.
However, most policies will cover the following if needed:
- Profits that would have been earned
- Employee wages
- Fixed expenses like operating costs and costs of doing business
- A temporary business location
- Replacing machinery and retraining personnel on how to use new machinery
- Taxes
- Loan payments
- Civil authority and ingress/egress coverage (this is key for coronavirus coverage)
- Extra expenses
How Does This Pertain to Coronavirus?
While business interruption insurance does cover the financial losses from disruptions to a business, according to law firm Fox Rothschild, it is often contingent on the “physical loss” of or damage to a business’ own property.
This can make claiming coronavirus-related business interruptions difficult, as some insurance providers may dispute that the criteria of “physical loss” to a business’ property have not been met.
According to the law firm Jones Day:
“Policyholders should keep in mind, however, that courts across the country have not settled upon a uniform rule for when insured property has suffered a “physical loss.” Courts in a number of jurisdictions have determined that contamination and other incidents that render property uninhabitable or otherwise unfit for its intended use constitutes a “physical loss” sufficient to trigger business interruption coverage.”
The Importance of Choosing Engagement-Based Companies
Even if denied by your insurance provider, you may find coverage from a pre existing policy in a court of law. However, if you haven’t begun searching for business interruption policies, prioritizing an responsive provider will allow you to talk with agents about their options regarding coronavirus.
In the face of a rapidly spreading global pandemic, it’s of the utmost importance to make sure your business has applicable coverage. If there isn’t communication between your business and your insurance company, you could be stuck with a policy that can’t support your needs.
The “Civil Authority” Clause is Key
Many commercial property insurance policies provide coverage and financial compensation for loss of income when a “civil authority” prohibits access to the premises. While it depends on the clause’s wording, access restriction often does not require that the “physical loss” occurs on the policyholder’s own property, according to Jones Day.
With lockdowns, shelter-in-place, and stay-at-home orders from governments, the “civil authority” clause may become grounds for coverage. If federal, state, or local government authorities have limited access to or from the area where your business is (“ingress/egress”), there is hope.
Find Stability in an Uncertain Future
Coronavirus’s disruption has resulted in an uncertain future for many companies. Taking every preventative measure means adding on business interruption insurance or reading into your current policies, making sure that while your company may have had to leave its premises, there are still options for financial assistance.
Much about this global pandemic is unfamiliar and unpredictable, making the exact coverage provided by business interruption insurance in a coronavirus-related case unknown. However, finding an engagement-based company to help you through your business’ specific situation will create the stability to move forward.
Sources:
- Federal Emergency Management Agency. Disaster Recovery. www.fema.gov/media-library-data/1441212988001-1aa7fa978c5f999ed088dcaa815cb8cd/3a_BusinessInfographic-1.pdf
- Jones Day. Time for a Policy Checkup: Maximizing Insurance Coverage for Coronavirus Losses. www.jonesday.com/en/insights/2020/02/time-for-a-policy-checkup
- Fox Rothschild. Insurance Coverage and Coronavirus: Business Interruption, Event Cancellation, and Travel Insurance. www.foxrothschild.com/publications/insurance-coverage-and-coronavirus-business-interruption-event-cancellation-and-travel-insurance/