Business Interruption and Loss of Use Amid COVID-19: Do Your Clients Have a Covered Loss?

Use of Loss - COVID-19The COVID-19 pandemic is putting businesses through some challenging paces. With mandates requiring the majority of businesses to shut their doors for an unknown period of time, your clients will be looking to their insurance policy to help fund their financial recovery. But COVID-19 is an animal unlike anything the insurance industry has ever experienced. This is raising a number of questions you and your clients may have regarding business interruption and loss of use provisions common to commercial property insurance. Here’s what you need to know.

Breakdown of a business interruption loss

Most commercial business property insurance policies typically include coverage for business interruption losses — including loss of revenue.[i] A basic breakdown of a business interruption claim is net income + continuing expenses + extra expense = business interruption loss claim. A covered claim typically includes a number of expenses related to the interruption of business, such as payroll, taxes and utilities, to name a few.

Are business interruption and loss of use damages related to COVID-19 a covered loss? 

Business interruption insurance covers a loss of income suffered by the insured due to damage to property that is covered under the policy when a covered peril causes a business to suspend its operations. Generally, coverage will be provided if the cause of the property damage is considered a “covered cause of loss,” such as a fire or windstorm, with most policies specifically excluding losses resulting from viruses or bacteria. Therefore, the fundamental question with respect to property insurance coverage for a COVID-19-related loss is whether the presence of the virus can cause or establish property damage. The answer? It depends.

In general, a covered claim for business interruption and loss of use requires some form of physical loss or damage to trigger coverage. However, in the case of the COVID-19 pandemic, coverage may not necessarily require a physical alteration of property if a contingent business interruption insurance policy exists.   As such, loss of use and functionality of the business property could trigger coverage, provided there are no applicable exclusions in the contract. In fact, some state jurisdictions that have held firm that contamination and other incidents that render a business property uninhabitable or otherwise unfit for intended use constitute property damage within the definition of a commercial property insurance policy as a direct physical loss. In addition, policies that are written to include “loss of use” of property that has become uninhabitable or unusable may also extend to COVID-19-related shutdowns.

So what does this mean?

That every claim situation is different, and coverage for business interruption and loss of use as a result of the COVID-19 pandemic will be based on specific policy language and the facts and circumstances of a loss. Policyholders should always refer to the specific language of their insurance contract when determining if they have coverage for a loss.


 

[i] Policies that don’t include business interruption and loss of use coverage often provide an option to purchase coverage as part of a commercial package policy. Coverage typically is not offered as a standalone policy.

 

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