The coronavirus outbreak has halted life as we know it, and rendered millions of businesses around the country inoperable and unprofitable. It has sent small business owners scrambling to review their insurance policies, to see if business interruption insurance will cover coronavirus-related losses.
Business interruption insurance or coverage, also known as business income insurance, is typically part of a larger business insurance package that includes property and liability coverage. Interruption insurance helps to replace lost income and pay for extra expenses when a business is impacted by a covered disaster.
Most covered disasters or issues are outlined in the details of your policy. They are typically things like fire, wind, falling objects, and theft.
Does a pandemic like the coronavirus outbreak fall under business interruption insurance plans? Could a case be made that they should?
Unless you have a clause specifically and uniquely written into your business interruption insurance policy that says it will cover you in the case of a pandemic, the answer is likely no.
Most insurers will deny your claim on the grounds that the pandemic has not caused physical damage to your business, which is supposed to be the triggering event for when coverage kicks in. If a fire damages your office or restaurant and renders you incapable of working, that’s a standard case for business interruption insurance.
If the coronavirus has caused your business to close—whether it’s because of government restrictions, your own decision to ensure the safety of your employees and customers, or because a loss of foot traffic makes keeping the business open untenable—but caused no “physical” damage to your property, that is unlikely to compel your insurer to cover your losses.
So again, we’ll emphasize: No “civil authority” (the local, state, or federal government) forcing your business to close, or preventative measures you take, or economic reasons for shuttering your business, will be covered by any typical business interruption insurance plan.
Many policies will be “named perils” policies, which means it will only apply to the perils listed—usually things like fire and wind. These policies are less expensive due to the limited coverage, and business owners with these policies will have a hard time arguing that “pandemic” is included.
Some policies are instead “open perils” policies, which means they cover all perils except those specifically excluded. Typical exclusions include floods, earthquakes, power failures, animals or insects, and so on. If “pandemic” or “coronavirus” doesn’t appear on your exclusions list, you might think you have a case.
The issue, however, is that business interruption insurance still typically requires physical damage to the property in order for a policyholder to qualify. Insurers will still likely refuse to cover coronavirus-specific claims for this reason.
The only situation we’ve seen posited that might trigger a payment is if an employee comes to work sick with COVID-19 and affects the operations of your business, e.g. kitchen equipment in a restaurant. This is a fairly narrow use case example, however, and insurance companies may still refuse to cover it.
Number one, as we’ve discussed above, it’s extremely unlikely that any business interruption insurance plan you buy, now or two years ago, will cover coronavirus-related losses.
But even if you could, just like with any other insurance, you cannot buy a policy and hope to apply it retroactively to losses you’ve already experienced.
There are a few legal and legislative efforts that may affect your ability to file a business interruption insurance claim in the near future.
For example, restaurateur Thomas Keller is currently seeking a court judgment that says his insurance company should cover his coronavirus-related business losses.
According to Keller’s attorney, the lawsuit is “intended to establish legal precedent so that businesses facing mandated coronavirus closures are covered by their business interruption insurance policies.”
Other restaurants around the country have filed lawsuits saying that civil authority-ordered closures should also be covered under their insurance plan, or say they are considering legal action.
In addition, a group of U.S. lawmakers have reportedly told trade insurance groups that insurers should recognize coronavirus-related losses under business interruption insurance. In response, some trade groups have begun working on a proposal for a federal program that would direct funds to pandemic-impacted businesses, as a way to mitigate what would be hundreds of billions of dollars in payouts to small businesses.
Stay tuned to see whether the federal government or the results of lawsuits will encourage or otherwise compel insurers to play a role in helping offset losses due to the coronavirus.
At the moment, small businesses won’t get much help from their business interruption insurance policy when it comes to covering pandemic-related losses. Most policies have been written with physical damages in mind, and insurance companies will look to avoid paying out on coronavirus claims unless compelled.
In the meantime, look for non-insurance ways to cut losses and obtain financing during the coronavirus outbreak. You can start by managing your cash flow as best you can, then move on to obtaining financial help through a government-backed coronavirus business loan. Visit our coronavirus resources page for more information.
Eric Goldschein is the partnerships editor at Fundera.
Eric has nearly a decade of experience in digital media, writing and reporting on entrepreneurship, finance, business lending, marketing, and small business trends.