When is a COVID-19 Business Interruption Claim Payable?

Employer helping clientSince early March, nearly 57% of businesses have experienced a 75% or more drop in revenue due to COVID-19, according to a recent survey. In fact, around two-thirds of business owners said they may have to shut their doors indefinitely if business disruption continues at the current rate. That means 7.5 million small businesses will be at risk of closing permanently over the coming five months, and 3.5 million are at risk of closure in the next two months.

As an insurance professional, you may have clients inquiring as to whether their policy will cover business interruption losses due to COVID-19. The short answer is, it depends. And while every situation and policy is different, the following are general concepts that can help you better address client concerns.

In general, for a business interruption claim to be payable, a commercial policy will require that some form of physical loss or property damage occurs. So when a business shuts down or loses customers due to COVID-19, insurers are likely to take the position that there has not been an actual physical loss or damage to property and, therefore, there is no payable claim. However, there may be a credible argument that if the presence of the virus in a building has rendered it unsafe for use, then the insured has indeed experienced a type of physical loss or damage.

Right now, it’s impossible to say for certain whether a business interruption claim due to losses from the pandemic will be payable. This is why it’s important to review commercial policies and assist clients in the filing and tracking of claims. Doing so is a proactive way to help your clients understand what is and isn’t covered. For example, there may be additional policy provisions or language that, if applicable, may help cover some types of losses. These coverages can include:

  • Contingent business interruption. Applies to an insured that may experience a loss arising from a disruption to their supply chain caused by a supplier, vendor or logistics provider that is unable to offer or deliver products or services to the insured.
  • Civil authority coverage. Protects the insured’s business from losses because of governmental action that impairs or prohibits access to the insured business, such as business interruption losses caused by government closure orders. Losses are typically capped, and coverage depends on the reason for the government action.
  • Event cancellation coverage. May provide coverage for losses sustained when a business is forced to cancel events. This may cover expected revenue and paid expenses that cannot be refunded. Some policies may be limited only to natural disasters and may not include coverage for a pandemic or communicable disease outbreak. However, in some cases, if an event must be canceled due to government orders, coverage may apply.
  • Environmental coverage. While most environmental policies do not offer coverage directly related to COVID-19 or any form of communicable disease, some policies provide broad coverage for many other environmental exposures. For example, the unexpected closing of a business for an indeterminate amount of time may result in property that isn’t being properly maintained. As a result, there could be environmental exposures such as mold growth or other indoor contaminants, as well as water damage from pipes, storage tanks, etc.

Today, insurers and brokers continue to grapple with the myriad claims relating to COVID-19 business losses — specifically those pertaining to business interruption. As your clients learn how to navigate changes brought about by the COVID-19 pandemic, it’s important for you to stay informed and help address issues and concerns.

At FastrackCE, we’re here to make it easy for you to maintain current CE licensing requirements so you can continue to serve your business clients during this challenging time. When you need us, we’re here to help. For more information, call 800-544-3605 or visit us at fastrackce.com.

This entry was posted in Insurance, News & Events and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *