ABC’s of Business Interruption Insurance

abc's of insurance

Natural disasters such as hurricanes, tornadoes, and blizzards cause direct physical damage to property, to which traditional insurance policies are designed to respond.  COVID-19 is a different type of natural disaster, one of which insurance policies may not cover.

Generally speaking, a fundamental prerequisite to trigger a Business Income / Business Interruption claim is that there must be direct physical loss or damage to covered property by an insured peril.  In our opinion,  most insurance policies will probably not respond to Coronavirus (COVID-19).  In addition, many policies contain specific wording excluding “viruses, bacteria or other communicable diseases”.  However,  we recommend that business owners be prudent and keep very accurate records to document lost revenues and increased expenses related to this incident.  If your business is suffering financial losses due to the COVID-19 outbreak, we strongly recommend keeping a detailed accounting of any such losses in the event there might be insurance available to cover them.

Furthermore, while there is no guarantee that something will be done, it is conceivable that as this global situation advances, special government loans or subsidies may emerge in which case this detailed information would become requisite, and therefore critical.  If, at some point, any type of Federal or State government subsidy program becomes available that might provide reimbursement for a portion of these expenses and lost revenues, it is likely that insurers will only consider claims associated with policyholders who have accurate, detailed and well-documented records.  This should be part of the steps you are taking as a response to this crisis.

In addition to being sound business practice, these records are necessary when submitting a claim to an insurance company for a coverage determination, or when applying for any potential government subsidies that are made available in coming weeks.  For example, just last week, the Small Business Administration announced the Economic Injury Disaster Loan Program.

Small Business Administration (SBA) Economic Injury Disaster Loans offer up to $2 million in assistance for a small business affected by COVID-19.  These loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact.  This website will help match you to a local SBA Lender.

This is an evolving crisis and coverage parameters will be tested.  Policies need to be closely reviewed and aspects of each claim investigated to determine if coverage applies.  We encourage you to speak with your commercial insurance agent with any questions about your current coverage.