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Business Interruption Insurance for COVID-19

March 18, 2020

By: Brian J. Pfeil and Christopher M. Meuler

The restrictions put in place to halt the spread of COVID-19 – such as limiting crowd size, closing restaurants and taverns, and shuttering of professional sports leagues – are critically stressing many of your businesses.

One possible form of relief to the financial stress is insurance coverage, including business interruption and contingent business interruption coverages.  Business interruption insurance is generally intended to cover losses from direct interruptions to a company’s operations, such as a fire, natural disaster or other event.  Coverage may include lost revenues, rent, or utilities, among other things.  Contingent business interruption provision generally provides coverage for a loss of income related to a problem associated with a supplier, vendor or major partner.

There are likely to be hurdles to obtaining coverage based upon disruption from COVID-19.  For example, a typical business interruption provision reads:

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 must be caused by the direct physical loss, damage, or destruction to property.  The loss or damage must be caused by or result from a covered cause of loss.

A “direct, physical loss” has been held to exclude economic losses unaccompanied by a distinct and demonstrable loss of the physical use of the business property.  Moreover, after the SARS epidemic in the early 2000s, carriers began to exclude viral or bacterial outbreaks from standard coverage.

But, coverage depends on the particular policy, and a policy review is worthwhile.  Not all insurance policies are equal in the coverage they provide.  The old adage that you get what you pay for often rings true with insurance policies because more expensive policies often provide better coverage than lower cost policies.  Also, coverage for COVID-19 related losses might depend on whether the policy provides business interruption coverage as a basic term of the policy, or as an endorsement.  An endorsement will often provide broader coverage than the base policy because of the additional premium for the endorsement.

Companies are facing business interruption losses as a result of the COVID-19 pandemic.  They should carefully review their insurance policies for potential applicable coverage.  The lawyers at Davis|Kuelthau are well-versed in examining and analyzing insurance policies, and advocating for policyholders.

If you have any questions about whether your company has business interruption coverage and/or the extent of that coverage, we would welcome the opportunity to review your policy and provide our assessment.  Please contact your Davis|Kuelthau, s.c. attorney, the authors linked above or the related practice group chair here.

We will continue to monitor the impact of COVID-19 and provide guidance to businesses via our Coronavirus Legal and Business Resource hub.