Coronavirus Business Interruption: Answering Your Coverage Questions
Many business owners are wondering today if they will get any sort of coronavirus business interruption coverage.
Times around the world have been unprecedented and tough because of the COVID-19 pandemic. Hotels are losing bookings, restaurants are getting hit hard, and hair and beauty parlors have no foot traffic at all. These are just a few of the brick-and-mortar companies that are getting a raw deal from the global health crisis. Now dragging into mutliple months of some businesses being shut down by government order, people want to know if they are going to get any help from their insurance company.
If you are a retail insurance agent doing commercial lines, no doubt, you have gotten many calls over the last month or two asking this question. You already know the answer. For those not on the inside of insurance, we will explain where you stand.
What Is Business Interruption Insurance (BII)?
Business interruption insurance, also known as business income coverage, covers you for loss of income if your business is shut down due to a covered loss. This takes the form of direct physical damage. For example, and let’s hope this never happens to you, suppose there is a fire at your location. There is no serious damage but your shop will close for several weeks while repairs are made.
In many cases, the above would fit the mold of a covered loss, and the insurance company will look at your receipts and records to settle on a figure for how much business you would have had but lost during the period you were closed. Most policies contain a provision in which your business must be closed for at least 48 or 72 hours before coverage activates. Always be sure to keep good records of your revenues going back a few years so the insurance company can figure out what you lost. The last thing you will want in the middle of a claim is to be dealing with too much of the back and forth.
If you have an unamended businessowners policy (BOP), coverage will be maxed out at the actual loss you sustain, which is to say, you will get the amount that can be proven you lost or could have had in the time you were closed. If you have a commercial package policy (CPP), they often contain a set limit of coverage.
We went more into this insurance and what it does previously, which may add some further context into how this normally applies.
Coronavirus Business Interruption: Where Is The Coverage?
Standard business insurance policies through ISO have an “Exclusion of Loss Due to Virus or Bacteria.” It is exactly what it says it is, and if you look up the CP 01 40 (or equivalent) form in your own policy, you will see that or something very close to it.
Then, refer back to the coverage form for Business Interruption, which for example you may see on the ISO “Businessowners Coverage Form“ BP 00 03 or equivalent. The form is clear that Business Income coverage is only activated if the underlying cause of the loss of income is covered (e.g. a fire or a water leak). Viruses and bacteria are excluded as causes of loss.
So, Is There Any Coronavirus Business Interruption Insurance? Can You Get It Anywhere?
The unfortunate answer for business customers is that there is no coverage under Business Interruption due to coronavirus. Not only does your policy state that tangible, physical damage has to happen to your premises, but virus and bacteria are rejected as a possibility outright. Therefore, the insurance company has no means by which to pay you.
If your locale’s stay-at-home order were lifted and people still did not come flocking back, there is no coverage for that, either. We’ve had situations in the past where one day a call from a business owner will come in and they will ask “Is there coverage because of the bad weather? Nobody’s coming to the restaurant.” That’s a definite no and the insurance company cannot and will not respond if the economy is reopened but people are not consuming again.
This is a coverage that is not available to purchase. It’s a standard exclusion on an insurance policy and cannot be bought.
Will The Government Get Involved?
Of course they could: they are the government and they are motivated by their poll numbers.
There are a few states that are considering compelling insurance companies to pay for coronavirus business interruption claims, including New York.1 The intent of this legislation is to override whatever your insurance policy says and have your insurance company fork out cash if you have lost business.
This is potential great news for businesses if the bills pass, but maybe not so good news for insurance companies. If you are a business owner who is suffering, you will take the help from wherever you can get it and why not the insurance company? Keep in mind, however, that if the legislation were to pass on a widespread basis, insurance companies would be cutting so many checks that (a) rates will almost certainly spike because of heavy losses and (b) some smaller insurance carriers may go insolvent.
Remember this as well: the insurance company would not just write you a check for whatever you “think you need to get by” in this situation. They are not in the cash advance business and as the business owner, you still need to have some evidence to support the dollar figure of business interruption coverage you are getting.
The best we can offer as your friendly insurance commentators are to hang in there. While the insurance policy may not be able to help, we all want to see you pull through this crisis stronger.
1: McCarter & English, “Six States Consider Extending Business Interruption Coverage to Coronavirus Claims,” Law.com/New Jersey Law Journal, April 10, 2020, https://www.law.com/njlawjournal/2020/04/10/six-states-consider-legislation-clarifying-business-interruption-coverage/?slreturn=20200326184920/)