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Business Interruption Insurance Coverage During the COVID-19 Pandemic


The COVID-19 pandemic has interrupted business practices on a global scale. In response to the loss of revenue caused by forced closures, restricted business hours, and supply chain issues, many organizations are reviewing their business interruption insurance policies to determine if a valid claim is possible. Whether potential claims are covered depends on terms and conditions of the policy, and the circumstances surrounding the losses.

Business interruption insurance is coverage (typically as a part of an overall comprehensive policy) that mitigates the loss of income that a business suffers after interruption of its operations due to property damage due to a covered peril (i.e., natural disaster, fire, hurricane, etc.). Businesses must show that the covered peril resulted in physical damage to the property, which in turn caused a tangible and quantifiable business interruption. Business interruption coverage typically will not apply where there is no showing of actual physical damage to the business’s property.

Despite the visible effects that COVID-19 has had on almost every conceivable industry – ranging from decreased revenue, closures, shutdowns, “work from home” policies, and layoffs – business could be disappointed to find that in some cases their business interruption insurance excludes recovery for communicable disease outbreaks. This exclusion was put in place by insurance companies following the 2003 SARS outbreak, where the number of resulting business interruption claims that were filed overwhelmed insurers.

Similar to business interruption coverage, contingent interruption coverage also typically requires a showing of actual physical damage to a third-party’s property that causes a business interruption to other corresponding companies and companies down the supply chain.

However, businesses may argue that COVID-19 exposure does in fact cause damage to the physical property – for example, making an office building uninhabitable or unusable for a period of time following knowledge of confirmed cases within the building. This may also be relevant for contingent interruption coverage. Reviewing the applicable policy can help determine if there are any triggers for interruptions related to disease outbreaks known as “notifiable disease coverage” clauses. For example, a fast food restaurant can experience losses if the bakery that supplies its hamburger buns needed to shut down due to COVID-19 exposure until such time that the property was decontaminated. This could possibly be seen as a contingent business interruption. However, the restaurant would need to evaluate if its policy covers losses in the context of notifiable disease coverage. Unfortunately, for businesses there is not a clear answer, currently, as to whether insurance companies will categorize COVID-19 as a “notifiable disease.”

Another key item for businesses to evaluate is whether coverage exists under the policy for interruption by civil or military authority. In some cases, showing damage to physical property under this provision will not be required. This provision may extend coverage to losses that are sustained during a time when companies are forbidden access to their property as a result of a government, civil, or military order.

Ultimately, to determine whether a business can recover for any losses stemming from the COVID-19 pandemic requires a careful and thorough review and analysis of the specific wording of the applicable provisions of the business’ insurance policy. As noted above, insurance companies are now reticent to approve claims for damages stemming only from disease or infection outbreaks, following the inundation of claims filed during the 2003 SARS outbreak. For policies that could be interpreted to cover disease-related claims, businesses should be prepared to show that their losses resulted directly from COVID-19, and not from a general downturn in business. This burden of proof can be especially difficult to establish during a recession that overlaps with timeline of the potential claim. Any and all material documentation that can be prepared and ultimately produced by the business demonstrating that the losses resulted directly from COVID-19 could prove to be crucial to any potential claim.

Businesses must carefully review their insurance policies to evaluate whether their business interruption insurance will allow any recovery for losses associated with the COVID-19 pandemic. Although many insurance policies employ standard language common across the industry, policies are often customized for each business’ specific needs and must be evaluated as such. Businesses should consult with an attorney to review the applicable policies and to assist the business with claim preparation. Utilizing legal services at the outset will help ensure that the company has complied with all prerequisite requirements and preserve its legal rights should a claim dispute become necessary.

Our team has extensive experience in reviewing, arbitrating, and litigating insurance agreements. If you have any questions about this Legal Briefing, please contact any member of our Firm at (585) 730-4773.

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This Legal Briefing is intended for general informational and educational purposes only and should not be considered legal advice or counsel. The substance of this Legal Briefing is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2020 Law Offices of Pullano & Farrow PLLC

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