COVID-19 sparked government-ordered shutdowns in March 2020 and put business owners on a course toward unchartered territory due to the pandemic. Business owners suffered financial loss but felt secure in the fact that they had business interruption (BI) coverage. BI is a necessity for any business. For those who have the coverage, paying a substantial price ensures the security of business continuity. Insureds thought they were protected against the ramifications of the pandemic; that their insurance policies would replace a portion of their businesses’ lost revenue when the COVID disaster forced them to suspend operations. Unfortunately, when businesses filed insurance claims to recoup their losses, their insurers denied the claims. This not only angered policyholders, but it was also a wake-up call to the importance of reviewing and understanding their insurance policies and giving special attention to the inclusions and exclusions.
What is Business Interruption Insurance?
A standard business interruption policy covers “direct physical losses” and do not provide coverage against communicable diseases. A commercial property policy, which includes business interruption coverage, pays for lost income and continuing and extra expenses incurred from a covered loss. A loss due to disease or outbreak is not covered.
Business interruption policies do not and were not designed to provide coverage against communicable diseases. A standard business interruption policy covers “direct physical losses.” For coverage, there has to have been tangible damage –something that alters the physical integrity of the property. A virus is not tangible.
Pandemics Are Uninsurable!
It all started in 2003 when the SARS epidemic caused widespread economic damage. Three years later the Insurance Services Office (ISO) filed an exclusion to state regulators for “Loss Due to Virus or Bacteria,” and insurers began to write in language that excluded business interruption caused by viral epidemics.
Although the argument that the presence of a disease on the covered property could be a direct physical loss, many commercial property policies include a pollution or contamination exclusion, which can include viruses, bacteria, and disease.
BI policies include highly specific language that for a claim to be paid out, there has to be “direct physical damage” forcing a business closure, tornados, fire, or another form of natural disaster.
To determine which insurance products are appropriate for your business, the professionals at Charles Leach are available to help. To receive a comprehensive business insurance review call us at 1-888-275-3224.