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Business Interruption Insurance FAQ

What is business interruption coverage?

  • In general, business interruption insurance coverage protects against losses sustained due to periods of suspended business operations. It pays upon loss of revenue that would have been earned if there had been no business interruption. Business interruption insurance policies typically list or describe the types of perils they cover.  Perils or causes of loss that are neither listed on, nor described in, the policy are typically not covered.

Do all commercial / business insurance policies provide business interruption coverage?

  • No. Business interruption coverage is an optional coverage that may be purchased as part of a commercial property, commercial multi-peril or business owner’s policy.

When is business interruption coverage triggered?

  • Business interruption coverage is typically triggered when:
    1. A covered peril causes direct physical damage to the insured premises, and
    2. The direct physical damage to the insured premises causes the necessary suspension of your business operations.

For example, if a fire damages a business and the business cannot operate during repairs resulting from the fire, business interruption coverage would be available subject to the terms and limits in the policy.

Are all business interruption insurance policies the same?

  • No. Business interruption coverages in commercial property and business owner policies contain different terms and conditions explaining how business interruption will be covered, what will be excluded, and how endorsements might alter the language in the base policy form. Because the terms and conditions are worded differently among insurers, it is critical for all business owners to read the specific terms and conditions set forth in their policies.

If I previously purchased business interruption coverage for my business, will it cover losses due to the COVID-19 pandemic?

  • It depends on the specific terms and conditions of your policy.  However, many policies, either in the base policy form or through an endorsement, exclude loss due to a virus. Even if a virus is not excluded in the policy form or the endorsement, many policies still require direct physical damage from a covered peril.“

Why do many policies exclude business interruption coverage for pandemics like COVID-19?

The National Association of Insurance Commissioners (NAIC) recently issued a statement regarding business interruption coverage. The statement explained:

Business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19 and therefore include exclusions for that risk.  Insurance works well and remains affordable when a relatively small number of claims are spread across a broader group, and therefore it is not typically well suited for a global pandemic where virtually every policyholder suffers significant losses at the same time for an extended period.  While the U.S. insurance sector remains strong, if insurance companies are required to cover such claims, such an action would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.

Additionally, in response to calls for legislation to retroactively mandate business interruption coverage, the NAIC stated:

We thank Congress and the Administration for acting quickly to give states greater flexibility to protect consumers and deal with ever-changing market dynamics, and we look forward to continuing that partnership as issues arise. However, as Congress considers further legislative proposals to address the devastating impacts of the COVID-19 pandemic, we would caution against and oppose proposals that would require insurers to retroactively pay unfunded COVID-19 business interruption claims that insurance policies do not currently cover.

Moving forward, if Congress believes that the business interruption insurance sector can play a vital role in addressing the policy challenges of future pandemics, Congress should work on such solutions. Swift action by Congress to directly address the needs of citizens and our economy could be an effective and expedient means to address the devastating impact of COVID-19.

Will my business interruption insurance cover my losses due to a civil authority order, like a Governor’s stay-at-home order for the COVID-19 pandemic?

It depends on the specific terms and conditions of your policy.  However, most commercial business interruption policy forms provide coverage only when:

  1. The civil authority order is due to a covered peril that causes direct physical damage (“virus” is typically not a covered peril); and
  2. A defined covered peril caused direct physical damage to property within a prescribed distance from the insured property; and
  3. As a result of the direct physical damage, a civil authority issued an order prohibiting access to your property which caused your business to cease operations.

Can SRIPLAW provide legal advice about my business interruption insurance policy?

  • Yes. We can help you by providing legal advice to policyholders on such matters.

If I have a question about my business interruption insurance policy, who should I contact?

  • Business owners should consult their insurance company, agent or legal counsel to determine if their policy provides business interruption coverage for the current COVID-19 pandemic.

What should I do if I think I have business interruption coverage for lost business income as a result of the COVID-19 pandemic?

  • File a claim with your insurance company.Your insurance company will either accept the claim or deny it.If, after reviewing your policy and consulting with your insurance agent or legal counsel, you believe you have been improperly denied business interruption coverage by your insurance company, you can file a complaint