If my business has been harmed by the COVID-19 / Corona virus Pandemic shutdown, what insurance benefits may be available to me?
The last few weeks have brought unprecedented devastation through the loss of life, social disruption, and harm done to our global economy. Businesses throughout the United States, including in Texas, Louisiana, and California, have suffered serious financial losses and business interruption caused by the orders of local, state, and federal government authorities requiring business to close or limit operations during the COVID-19 / Corona virus pandemic. The direct impact has been felt by the restaurant, hotel, entertainment, vacation, and tourism industries, but no industry has been left untouched by the pandemic. For example, doctors, physicians, dentists, chiropractors, physical therapists, and optometrists have also had their businesses interrupted by stay-at-home orders.
Facing this business interruption, many business owners are searching for ways to stay afloat and to avoid financial ruin. Much of the focus of regarding business interruption and financial losses has been on large companies and opening lines of credit. But often, small businesses do not have the resources, time, or cash flow to survive without direct financial help in recouping revenue that their businesses needed to survive. Many small businesses have already been forced to close for weeks and potentially months with no clear path in the future when they can reopen. Even if they do reopen, the ability to return to full capacity and how things were before the pandemic will be tested.
While one avenue of staving off business interruption losses will be through governmental assistance, including through Small Business Administration or SBA loans or the Corona virus Aid, Relief, and Economic Security Act (also known as the CARES Act), every business owner also should be evaluating whether or not their insurance policies provide coverage for the losses caused by the COVID-19 / Corona virus pandemic. This review should be completed by a licensed attorney with insurance coverage experience, not simply by an insurance agent or broker, who may not have the training or background to analyze business interruption policies under the law.
What is business interruption insurance?
Fortunately, many businesses have insurance that can protect them during this downfall. These policies are often called business interruption insurance; however, other names are used, including time element coverage, virus coverage, or civil authority coverage. Business interruption or time element coverage can be included in a separate insurance policy, called a Business Interruption Policy or Time Element Policy, but often this coverage is included as part of a larger policy, such as standard property coverage, specialty property coverage, business owners’ coverage, or other commercial insurance policies. The first step of determining whether you might be covered is to request every single policy that you have from your broker.
Business Interruption Insurance is exactly what it sounds like. Put simply, business interruption coverage pays for the loss of income and other damages suffered as a result of a disaster. A disaster does not only mean physical harm from a weather event, like a hurricane, hail storm, or tornado. Depending on the specific terms of the business interruption coverage, it may also cover losses caused by a forced to shut down due to a disaster. Some general areas of coverage for business interruption insurance are profits, fixed costs, overhead coverage, temporary costs, commission and training, other general business-related expenses, and/or lost streams of revenue.
However, these policies do not come without complications, and there are various insurance traps that should be evaluated before determining if there is business interruption coverage or a business interruption claim should be made. For example, some business interruption policies include limited coverage for or may even exclude losses that are caused by a virus. These are often called fungi, bacteria, or virus exclusions. Depending on the specific terms of virus coverage or a virus exclusion, business interruption coverage could be reduced or eliminated. However, the analysis of business interruption insurance should not stop there.
Many policies also have additional coverage for losses caused by the order or decision of a civil authority or governmental authority. In other words, if a civil authority, like a local government, shuts down a business, separate insurance coverage may be available. These policies cover losses caused by a governmental order that prohibits operations, but also may cover losses caused by a partial or temporary suspension of business. For example, restaurants that are prohibited from offering full service or dine-in options still may have business interruption coverage, even if they are able to limit their losses through to-go or delivery service.
Finally, the last pitfall to be analyze in such policies is a direct physical damage limitation. The purpose of a direct physical damage provision in a business interruption or property insurance policy is to limit coverage to interruptions that are caused by direct physical damage to the property itself. However, there are nuances to these limitations that may or may not apply to your loss based upon the specific language of the policy. For example, a business that has actual physical proof of a virus on its property, like COVID-19 / Corona virus, arguably has direct physical damage to the property. Moreover, the direct physical damage limitations that are contained within some policies oftentimes do not apply to fungi, bacteria, or virus coverage and do not apply to civil authority coverage.
Bottom line, an experienced legal professional is necessary to analyze the various types of insurance coverage that your business has and to determine whether it is possible to navigate through the various traps that exist in policies involving business interruption, time element, civil authority, or fungi, bacteria, and virus coverage. Finally, because many insurers will fight tooth and nail to avoid payment or decrease benefits owed under a business interruption policy, an experienced insurance attorney, like the ones at Doyle LLP, will be necessary. Insurance contracts can sometimes be difficult to read and interpret without special knowledge of the insurance industry and our legal system. Having an attorney with decades of experience in the field helps you have an ally in your fight against insurance companies and their legal teams who specialize in finding ways to avoid payment of benefits.
If you are a small business owner, who have suffered financial losses at your hotel, restaurant, medical practice, optometry practice, dental practice, or other business, contact the lawyers at Doyle LLP for a no-cost evaluation of your insurance policies.
SMALL BUSINESS OWNER CHECKLIST FOR COVID-19 / CORONA VIRUS BUSINESS INTERRUPTION CLAIM