Navigating Business Interruption Coverage: Policy Language and COVID-19 Impact

Understanding Business Interruption Coverage

The debate over whether business interruption coverage in property policies applies to COVID-19-related losses has been a significant issue during the pandemic. Lawsuits have been filed, seeking to establish that policyholders are entitled to coverage for losses sustained during shutdowns. The debate often focuses on the phrase 'direct physical loss or damage' in insurance policies. Business interruption coverage can apply to losses stemming from direct physical loss or damage, but losses that didn't come from direct physical damages aren't covered.

Policy Language and COVID-19

Insurers argue that 'damage to property' requires structural alteration, like in a fire or wind damage claim. The virus, however, leaves no visible imprint and can't survive long on surfaces. Some plaintiffs' attorneys argue that if coronavirus is not direct physical damage, insurers would not have created an exclusion for viruses. Many insurers added exclusions for losses from viruses and communicable diseases after the SARS outbreak in 2003. Policy language controls whether COVID-19 interruptions are covered, with some policies providing 'all-risk' coverage and others having variations.

Current Claims and Practical Advice

Are business interruptions related to COVID-19 due to government restrictions or physical loss to property? Many current claims might not trigger standard coverage in commercial business interruption policies. A true 'all-risk policy' would cover all losses except those specifically excluded. However, most commercial property policies cover business interruption losses 'caused by direct physical damage to property' at or near the insured premises. This will be a difficult burden for policyholders to meet. Some policies exclude coverage for losses resulting from mold, fungi, or bacteria, and others exclude viruses, diseases, or pandemics. Policyholders should provide prompt notice to their insurers and cooperate with them to avoid denial based on late notice or lack of cooperation.

According to a survey by the Insurance Information Institute, 60% of small businesses do not have business interruption insurance. This highlights the importance of understanding policy language and ensuring adequate coverage. For businesses affected by COVID-19, it's crucial to review policy terms and consult with legal experts to navigate potential claims.