1. What is it? Business interruption insurance is insurance to cover losses when your business is unable to operate for specified reasons beyond your control. In the context of commercial real estate, it is not unusual for landlords to obligate tenants to carry this insurance (landlords often carry their own business interruption coverage too). As a tenant, your policy would protect your business revenue and the landlord’s policy would protect its stream of rental income.
2. Business interruption insurance will surely cover losses stemming from the COVID-19 pandemic, right? Not so fast. For the cynical among us, it will comes as no surprise that the insurance industry is arguing that business interruption insurance policies were not designed to cover THESE types of communicable diseases and, therefore, they intend to deny claims for coverage. This means that business owners may be stuck filing lawsuits against their insurance companies plaintiff attorneys—an expensive, distracting, and speculative effort. The outcome of these disputes will likely depend on the particular facts of each case and the precise wording of each policy. An insurance policy is, after all, nothing more than a contract.
3. What role will government intervention have as relates to business interruption insurance? An important part of the analysis will involve the details of the government stimulus packages, emergency relief programs, stay-at-home orders and related government regulatory activity. Business interruption insurance policies typically require a physical loss. Whether the pandemic qualifies likely will be a topic of passionate negotiation. Also, many policies include what is known as a 2006 ISO endorsement, which EXCLUDES coverage for losses due to viruses, bacterium and other micro-organisms. On the other hand, the same policy may also include protection from government-imposed shutdowns. Mandatory closures would seem to apply. One important question to consider is timing (i.e., does it matter if the business closes before ordered to by the government).
The only certainty during these times is the existence of uncertainty. Depending on your circumstances, it might be prudent to provide notice to your business interruption insurance carrier of a potential claim. The insurance company will likely protect their interests by denying the claim but starting the process may protect you as the situation unfolds in the coming months. Regardless, it will be helpful to assemble the relevant documentation to pursue such a claim or apply for an EIDL or PPP loan (e.g., financial statements, tax returns, payroll information, sales reports and other documents evidencing business losses).
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