California’s been through a lot. Wildfires, earthquakes, mudslides, world wars, booms, and busts. Now your business is suffering because of a COVID-19 pandemic and government “stay-at-home” orders. Shouldn’t you be able to use that insurance coverage since your business has been interrupted? Insurance is supposed to cover off-the-wall events people don’t think about, right?
It should, but unless your claim is highly unusual, it probably won’t. As much as you liked the agent’s sales pitch and all the colorful brochures you received from your insurance carrier claiming it’s a critical partner for you, there when you need it, insurance policies are just contracts. Read the fine print. If coverage of a loss is excluded, even if you file a claim, it will be denied.
Standard property insurance policies usually have two kinds of coverage potentially related to the coronavirus.
- Business interruption coverage is for losses caused by a direct effect on operations
- Contingent business interruption coverage is for indirect losses, such as missing suppliers or customers
Most business interruption coverage comes into play if the business property suffers direct physical loss or damage, according to the Insurance Journal. But there need not be structural damage to the property. There could be some kind of contamination that makes the building unusable or uninhabitable to get coverage. Your policy may include civil authority coverage, which might cover losses due to government authorities restricting access to your business is located or to a location that your business depends upon for its operations.
Contingent business interruption coverage is typically for damage or disruption due to suppliers, customers, or critical partners. Your business need not suffer physical harm, but you would need this specific coverage to make a claim.
This sounds all very good, but according to the insurance industry organization, the Insurance Information Institute (III), expect push back if you file a claim. According to their blog (nearly a year old, insurance people think ahead):
- Standard commercial property policies probably wouldn’t cover losses due to a disease outbreak
- Most property policies and interruption coverage require property damage causing income loss. Neither sick employees nor these government orders damage property
- The same is true of traditional civil authority coverage, which usually involves some kind of damaged property that happened, though there are policy endorsements which could include losses from disease outbreaks
But the presence of a virus may be a direct physical loss because it could be considered like a pollutant, which some policies cover. Check your policy because many commercial property policies exclude this kind of coverage, which would eliminate harm due to viruses, bacteria, and diseases. If you have coverage, how do you prove the presence of a virus/contaminant/pollutant? When did it happen? How long did it last? How do you calculate your losses?
The III admits that if you have specialized supply chain insurance and your supplier shut down due to a disease outbreak, you could be covered for lost income, whether or not there was any property damage that caused the disruption.
Insurance is there when you need it unless it’s not. You need to understand your coverage, what it will or will not pay for, what it may or may not cover. I can help you navigate the grey areas so you can get where you want to go.
If you have losses due to COVID-19 and want to discuss making a possible insurance claim, call us now for a COVID-19 Strategy Session, and let’s talk about how we can help you to run your business without worrying about the underlying legal consequences. Call us now at (714) 415-2007 or reserve your spot by clicking the link: https://bit.ly/COVID19StrategySession