Business Interruption Insurance and the COVID-19 Pandemic

Does your business insurance policy cover the lost business due to the pandemic?  Most businesses carry commercial property insurance, which often includes business income coverage provisions.

Recent events have caused our Chicago area business clients to raise questions as to what to do when their business is forced to close by Governor Pritzker’s “Stay-At-Home Order.”    Business owners have some options they might want to consider.

COVID-19 – the Coronavirus – has put a halt on business as we know it.  The ordered closures of restaurants and bars across the country, and the official ban on public gatherings, have abruptly disrupted the work force.  Many businesses are now concerned of the virus’s potential financial impact on their operations. revenue and employees.  Businesses facing losses due to an inability to fulfill their obligations should now review their insurance contracts to better acquaint themselves with their rights, remedies and responsibilities.

Business interruption insurance provisions typically cover a policyholder’s losses when their operations are interrupted.  Businesses located in areas affected by with the Coronavirus – like the Chicago area businesses – will experience significant disruptions. These businesses should be looking to their insurance providers for coverage on their losses. Such coverage is often available but may be linked to a direct physical loss, or even property damage at the policyholder’s physical location.  Business interruption provisions protect against losses sustained during periods of suspended operations due to property damage.

Commercial business interruption coverage provides insurance for financial losses caused by disruptions to a business’s suppliers or customers.  Such coverage often requires that the underlying cause of the damage to the customer or supplier be one that’s covered with respect to the business’s own property.

No doubt, insurance companies will likely dispute coverage and assert that a property’s closure due to fear of the Coronavirus is outside policy limits. However, depending on governing law and the policy’s language, insurance companies may have to cover their policyholders’ losses. Courts across the country have yet to settle upon a uniform rule for when a policyholder’s property has suffered a physical loss or damage. The scope of the coverage will depend on the specific terms and language of each insurance policy. The assessment of physical loss will require a close examination of the facts of each case.

Actual contamination of property may constitute as property damage. If actual contamination leads to business closures and losses, business interruption insurance coverage may respond.  A business able to confirm that COVID-19 has been found and infected their premises may be able to argue that their property has been damaged, which is governed by the terms of the insurance policy.  This property damage may then trigger business income insurance.  Some limitations do apply on policies and each policyholder is advised to examine their coverage closely.  In the aftermath of SARS, insurance companies amended their policies and added specific exclusions for bacterial or viral infections to their coverage, but the property damage provisions may be triggered by government-ordered closures.

Some commercial property insurance policies provide coverage for income losses caused by civil authority prohibitions that impair access to the policyholder’s location. This coverage is activated when access to the area surrounding the damaged property is prohibited by civil authorities, and when the action of civil authorities is taken as a response to the dangerous physical conditions caused by the damage.  Civil authority coverage may aid businesses affected by events that limit access to their premises such as the Stay-in-Place orders.

If your business has been affected by the nationwide closures imposed by federal and state governments, it is now time to closely examine your insurance policy.  Your policy may allow you to mitigate your losses and ultimately save your business and you should consult with experienced Chicago business lawyers to assist and advise you on dealing with the loses to their business due to the pandemic and government-ordered closures.

UPDATE – March 27, 2020:  Several suits have been filed against insurance carriers for business loses. in the first one, New Orleans restaurant Oceana Grill filed suit against its insurance carrier, Lloyds of London, seeking coverage under its business interruption coverage.   In another suit, World famous chef Thomas Keller, who owns several restaurants filed suit seeking to force his insurance company – Hartford Fire Insurance Company – for business loses arising out of the forced closure of his business, the world famous Napa Valley restaurant – The French Laundry – filed suit  on March 25.

It is certain that more similar suits will be filed in the near future as business owners try to recover from the devastating damages to their business and their employees.