March 25, 2020

Coronavirus Impact: Business Interruption Coverage

Businesses are experiencing an unprecedented disruption as a result of the coronavirus pandemic–COVID-19. In many states, all businesses except those deemed essential have been shut down, causing substantial, and likely sustained, business income loss. Affected businesses may be able to recover some, or all of these losses, through business interruption coverage within their commercial property insurance policies.

Business interruption coverage provides for the reimbursement of lost business income stemming from disruptions to business operations. Typical disruptions may include damage to or loss of physical property due to events such as hurricanes, fires and earthquakes. Lost business income is generally defined as the net income a business would have earned through normal operations but for the disruption, and continuing standard operating expenses, including payroll. Specific coverage is driven by the terms and conditions of the insurance policy, which can vary greatly, as well as the relevant law that applies to the interpretation of those terms and conditions.

It is important for businesses to carefully review their insurance policies to determine whether coverage is available. Businesses should consult with their insurance brokers as well as counsel. Issues relevant to the COVID-19 disruption include:

Whether the insurance policy has a virus exclusion clause. Depending on how broad such exclusion is, an insurance company may challenge the right of a business to file a business interruption claim.
Whether the COVID-19 virus can be deemed to have caused a direct physical loss – which must first be met in order to file a business interruption claim (for example, in situations where a business closes due to the presence of an infected individual). The actual terms of the policy and applicable governing law will drive such determination.
Whether the terms of the insurance policy allow for the filing of a business interruption claim as a result of shutdowns imposed by government authorities.
Whether the insurance policy covers business disruptions resulting from the loss of a key supplier’s services/products, as a result of COVID-19.

COVID-19 disruption poses unique insurance coverage questions, and a careful review of a policy’s terms and conditions together with obtaining professional advice can assist a business to determine whether the filing of a business interruption claim is a viable option. Once a business determines that filing a claim is defensible, Marcum’s advisory professionals can assist by quantifying lost business income in a manner that is supportable and can withstand external review, including testimony under cross examination.