Business Owners: Insurance May Cover Your COVID-19 Losses
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Business Owners: Insurance May Cover Your COVID-19 Losses

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Business Losses From COVID-19 Shutdown

If your business has suffered losses due to a COVID-19 shutdown, you may have insurance coverage that will compensate you for the damages. Many businesses carry Commercial Property Insurance which is typically sold as a package with Business Interruption Insurance. Together, they cover businesses for physical damage to business property, as well as loss of income and overhead expenses resulting from a “physical loss or damage to” business property. This may extend coverage for business losses caused by the Coronavirus shutdown. 

Before we get into the details, there are some practical steps you may want to take during this time. The first is to get a copy of your insurance policy from your insurance company. The second is to collect evidence of your loss, such as how much money your business would have made if it weren’t for the interruption. Remember to keep detailed notes of your communications with the insurance company, noting dates, times, and who you spoke with and why.

What is Covered Under Business Interruption Insurance?

What is covered and when coverage applies depend on the actual language of each particular policy. In general, however, Business Interruption insurance covers lost profits and overhead due to a suspension or slowdown of business operations. The economic loss must arise out of a covered risk, and not otherwise be subject to any exclusions.  

Analyzing whether a business loss is covered requires asking two questions. First, is there a covered loss? Second, is that loss subject to any exclusions? As to the first question, business interruption insurance typically requires the loss of business income resulting from some loss or damage” to business property.  

Other forms of Business Interruption insurance include contingent business interruption and supply chain interruption. These coverage extensions typically protect against losses resulting from disruptions in the supply chain, such as a loss of business income due to the inability to obtain materials from a supplier, or the inability to ship products to a client. 

Other coverage extensions may include Ingress/Egress and Civil Authority coverage.  Ingress/Egress coverage applies to business interruptions that result from the inability to access the companys location. Similarly, Civil Authority coverage typically applies where the business interruptions result from government orders preventing access to the business property. For example, Ingress/Egress coverage may apply where the business is located in a mall which has been closed down, preventing access to the business location.  If the mall is shut down because of a government order, the loss may trigger Civil Authority coverage. As with the other coverage extensions, Ingress/Egress and Civil Authority coverage typically require that the inability to access the property be a result of such loss of damage” to some other property.

A common misconception – usually relied on by insurance companies – is that Business Interruption insurance is only triggered where the loss of income results from some physical damage to property.  While each insurance policy is different, as a general rule, physical damage to insured property is not required to trigger Business Interruption coverage. Rather, typical insurance policies only require a physical loss” of business property, which some courts have interpreted as including the inability to access the business property for reasons other than physical damage. 

To be sure, if your business was shut down in order to clean an active COVID-19 contamination, there is a physical loss” for purpose of business interruption insurance. However, such an active contamination may not be necessary.  The government order shutting down uncontaminated businesses in order to slow down the spread of COVID-19 arguably qualifies as a physical loss” since it prevents customers from accessing the business premises.

As noted, having a business loss which results from a physical loss or damage” is only the first step of the analysis.  To be covered, the loss cannot fall within one of the many exclusions from coverage.  

Possible Exclusion From Business Interruption Insurance

When it comes to the current shutdown, insurance companies may argue that the exclusion most likely to apply is one for losses due to a virus” or microorganism.”  These exclusions are common in Business Interruption policies, but vary from policy to policy. Typically these exclusions bar coverage for any business loss that arises due to a virus or other microorganism.  With respect to the COVID-19 shutdown, a key question for insurance coverage will be whether the losses were caused by the virus, or by the government order shutting down businesses.  

Insurers are expected to take the position that the shutdown, and resultant losses, were all caused by the virus and are excluded.  However, there is an equally compelling argument that the exclusions should only be limited to situations where the business is shut down because of an active contamination. As the vast majority of businesses in the United States have not had an active contamination, we believe that the exclusion does not apply and the losses should be covered.

Because this is the first time in modern history that the United States has completely shut down its economy to address a pandemic, this issue has never been considered by any court in the United States. Given the billions of dollars at stake, we anticipate that insurers will uniformly deny all Business Interruption claims on the basis that either there is no covered event (i.e. no loss or damage” to property), or that one or more exclusions apply. These issues will ultimately be addressed and determined by the courts.

Other Insurance That Can Provide Coverage

In addition to Business Interruption insurance, there are several other types of insurance which could help ease the financial burden on businesses.  Event cancellation insurance covers organizers of public events against losses incurred from cancelled events. Key person policies may cover losses to a business resulting from the inability of a key employee to perform work.  A business may also be the beneficiary of life insurance policies on key employees or owners. 

Call PARRIS For Business Insurance Help

Determining whether COVID-19 related losses are covered under one or more insurance policies is a complex process. Policies are usually hundreds of pages long and use specialized language, the interpretation of which is subject to numerous legal rules. 

Companies should act quickly to assess their Coronavirus-related losses and review their available insurance policies. They should promptly notify their insurers of losses, as some policies may contain strict reporting deadlines. 

PARRIS Insurance Attorneys have decades of experience suing and recovering millions of dollars from insurance companies.  PARRIS Law is offering free consultations to businesses financially impacted by the current shutdown.  We will review your policies at no cost, and advise whether you may be entitled to compensation from your insurance company.  To start your free case consultation, call PARRIS at (661) 485-2072 or email contact@parris.com.

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