COVID-19 has disrupted many businesses in recent months, which may have resulted in unexpected revenue loss and supply chain issues. If you own a company, you may be wondering whether business interruption insurance can help you recover from loss, either now or in the future.
A Quick Primer on Business Interruption Insurance
As its name suggests, business interruption insurance helps protect the insured against potential financial loss in a company due to unexpected, externally-driven perils to the business. While specific language within insurance policies will vary, there are some common protections that you likely will see across business interruption insurance policies, including coverage for:
Income lost in your business
Payroll costs for your employees
Business loan and lease/mortgage payments
Temporary relocation costs
Insurance companies will package and market their business interruption insurance policies in different ways. Business interruption coverage can be a stand-alone policy, included as an add-on, or a rider within an overall comprehensive business insurance or property/casualty policy. There are also so-called “contingent” business interruption policies, which are separate policies or riders that help insure you against losses in your business caused specifically by disruptions within a key supplier or customer of your business.1
If you own a home-based business, your homeowners’ policy won’t cover any of the above items.
Does COVID-19 Qualify as a Business Interruption Event?
Discussing with your insurance provider the definition of business interruption is important because the definition of business interruption is not always clear. Many business property insurance policies which include business interruption coverage will directly cover loss from a peril or event if it meets these two primary conditions:
- Sustained physical loss or damage to property caused by fires, wind damage or theft (assuming that none of these perils are specifically excluded in the policy); and
- Any business interruption loss must be quantifiable. 2 3
Clearly, a peril such as the COVID-19 virus will be a more challenging claim if these are the two deciding factors in your business insurance policy. This may especially be the case for policies written prior to 2020. These policies were less likely to specifically emphasize and insure perils such as viruses and disease.
However, even with these hurdles, there may be other ways to create a valid business interruption insurance claim due to COVID-19. For example, if you own a contingent business interruption policy or rider, it may be possible to recover some COVID-19-related business losses if your company has a key supplier or customer that was also disrupted by COVID-19, and if you can quantify the impact.4
Another possible avenue to an insurable COVID-19 related claim could be an indirect extension of your current business property insurance coverage. For example, a civil authority or government agency may have prevented access to your business’s physical location or required that you clean or disinfect your property, HVAC systems, or other physical surfaces.5 Such extraordinary business costs may more easily qualify as both quantifiable and physical property losses.
At the end of the day, the specific language and the insurance company’s interpretation of the insurance policy documents will ultimately determine your qualification for and level of recovery in a business insurance claim.
Time Is of the Essence: Consider Your BI Insurance Policy Options
If you plan to file a business interruption insurance claim, do so as soon as possible. Insurance policies often place time restrictions on when you may report a claim (for example, up to 60, 90, or 180 days from the date of the peril/event).
Before you call your insurance company, you may want to prepare and gather whatever documents you need to help quantify your loss claim. This could include, for example, financial documents to help validate your claim of loss of revenue and additional incurred expenses as a specific result of the COVID-19 impact. Your case may also hold more weight if you can relate such items to physical property owned by the business, as discussed above.
Even if you do not currently own business interruption insurance, the COVID-19 pandemic may have convinced you to shop around for such a policy for future protection.
Opportunistic insurance carriers are likely to offer more policy options in the future. But you should also expect them to charge accordingly to insure such outsized potential risks. You may wish to consider whether those additional insurance costs are worth your peace of mind for your business, or if you would be better served by saving those additional insurance premiums and accumulating your own rainy-day, safety-net account for your business.
As always, we at Modera Wealth Management, LLC stand ready to offer assistance in helping you evaluate your specific needs and potential options.
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