With both voluntary and involuntary business closings due to the COVID-19 pandemic , both insurers and insureds are exploring the possibility of insurance coverage under the typical Business Owner Insurance Policy. Business interruption insurance, also known as business income coverage, helps replace lost income and pay for expenses when a business suffers an impact by a covered loss. The most common covered losses include fire, wind, water pipe breaks, and lightning. However, does this coverage apply to loss of business due to the coronavirus?
Insurers use a myriad of forms, endorsements and definitions to provide such coverage, or limit or even exclude business losses for these claims. Many insurers manuscript their own policies and it is impossible to generalize whether business income claims are covered by the insurers’ respective policies. In addition, due to premium costs, many small businesses do not even obtain this coverage. More importantly, there is an evolving legislative response to the coronavirus on both a state and national level, making it difficult, if not impossible to examine and predict coverage outcomes for claims due to the coronavirus. Some of the key issues will be set forth below.
Business Income Coverage
Generally, the business owner’s policy will cover loss of income from a direct physical loss to an insured’s property by a covered peril. The amount of this insurance coverage can be found in the declaration page. The claim itself would be equivalent to the loss of revenue due to the loss event.
Due to the coronavirus , did the business voluntarily impose work restrictions causing a loss of income? Or, was it required to close by state or local decree? Were restaurants closed or limited to take-out orders or completely shuttered while supermarkets remained open? Some insurance policies cover actual business loss when operations are specifically prohibited by an order of a civil authority where there is a covered loss. One must look to both the local, state and federal authorities to determine whether or not an entity was required to close or did so voluntarily.
In addition, some policies contain Limited Fungi, Bacteria or Virus Coverage. This endorsement can either exclude or limit losses caused by a virus. Many insurers use a form of this endorsement in the policy itself. For example, a “virus exclusion” would “not pay for losses or damages caused directly or indirectly by…bacteria or virus.” As an excluded peril, this endorsement would exclude any claim for business income under the policy. Other policies require surcharge premiums for this coverage, but contain sub-limits.
As set forth above, it is imperative to review the actual policy, forms and endorsements to determine whether the coronavirus is a “covered peril” in the first place. The insured may even have paid a premium for coverage but suffers because of a reduced policy limit.
Both federal and state governments are addressing possible benefit payments as an alternative to insurance coverage for coronavirus- related business losses. There are presently bills pending on a federal level that could provide businesses and individuals monetary relief from coronavirus- related losses. Similarly, the New Jersey legislature has proposed a bill that would require insurers, who provide business interruption coverage, to cover such losses even when virus-related losses are excluded or limited.
New Jersey Bill
You can review New Jersey Assembly Bill 3844 and Statement here. At this time, this bill covers businesses with fewer than one hundred employees working at least twenty-five hours per week in an effort to help those smaller entities to address their business losses..
As always, our law firm stands by to provide assistance to you and your business for coronavirus- related business interruption claims. This landscape is changing hourly due to the fluid nature of both federal and legislative responses to this worldwide contagion.. The variations in insurance policy language and their exclusions, endorsements and conditions portends an unpredictable future for recovery of business losses due to the coronavirus.