Does Business Insurance Cover Losses From COVID-19?

Many businesses throughout the United States suffered, and continue to suffer, significant disruption as a result of closures and disturbances related to COVID-19. Business owners may be wondering if they can be compensated for losses associated with this pandemic, or future pandemics, by their commercial insurance coverage.

In short, success depends on the details of the policy and the nature of the losses, which both involve obstacles. Presently, most insurance claims for losses associated with COVID-19 are being denied by insurers. However, this is a developing issue.

The Different Types of Commercial Insurance

Insurance is one way that business owners can help minimize their losses after something unexpected happens. The most common types of commercial insurance are property, liability, and workers' compensation.

Property insurance covers certain losses and damages to real and personal property. Liability insurance covers certain injuries that a business causes to third parties. Workers' compensation insurance — typically the only type of insurance required by state law — covers workplace injuries.

Obstacles Making COVID-19 Insurance Claims Difficult

Many businesses carry commercial property insurance, and this is where most businesses will look if they want to file an insurance claim for losses associated with COVID-19 business disruptions.

Though commercial property insurance is intended to cover physical damage sustained to business properties, most policies have an add-on option for business income coverage.

This coverage is generally for the income loss a business sustains when:

1. Property damage causes business operations to slow down or stop;
2. Property owned by others that a business depends upon is damaged and causes interruptions to delivery or acceptance of materials or services, or manufacturing; or
3. A civil authority physically prohibits access to a business property because the property is damaged and dangerous.

As you can see, all three of these scenarios are the result of physical property damage that leads to business disruption and loss of income. The type of damage must fall under the policy's definition of a "Covered Cause of Loss" such as a fire or tornado.

The obstacle businesses making claims related to COVID-19 disruptions face is that they have to successfully argue that the novel coronavirus is a covered cause of loss even though it does not create visible property damage like a fire or tornado does.

Businesses that actually had the virus found on their properties might have an easier time making this argument, but even then, many insurance policies have amendments that preclude coverage when the damage involves "viruses, bacterium, or other microorganisms."

Unfortunately, the current trend among insurance carriers is to deny business income loss claims results from COVID-19. The claim denials have resulted in litigation across the entire globe, which could dictate how future claims are handled.

What Are Courts Saying?

Many frustrated business owners have sued their insurers after their COVID-19-related business income loss claims were denied. According to the Claims Journal, thousands of these claims are likely. The central question in these claims is whether COVID-19 should be considered a form of physical damage that allows for business income coverage.

So far in the U.S., there have been at least two courts that have ruled on the matter, and both took the side of the insurers. But the matter is far from settled.

Litigation is also underway in other areas of the world. Reuters reported that a Paris court ruled on behalf of a restaurant owner, ordering that the business' insurer must pay the owner two months' worth of revenue losses stemming from COVID-19.

Legislatures Considering Bills Forcing Insurers to Pay

Lawmakers in a growing number of states have introduced measures requiring insurance companies to retroactively cover business interruption claims related to COVID-19. In some states, the requirement would only apply for businesses with less than 100 employees.

Even though insurance matters are usually handled at the state level, the federal government is also considering the issue. Two related bills, including the Business Interruption Insurance Coverage Act of 2020 (H.R. 6494), have been introduced in Congress and President Trump showed support for businesses fighting for their claims to be accepted at a White House coronavirus briefing in April.

The insurance industry has told lawmakers that requiring insurers to cover these claims would overburden insurers and cause future policies to be unaffordable. However, the insurance industry also appears to be willing to help find a solution, perhaps comparable to the victims' compensation fund that was created after 9/11.

Filing a Claim

If you are planning to file a claim with your business insurance provider for losses stemming from COVID-19, it's important to do so right away. Nearly all policies require policyholders to file claims "promptly," and failing to do so can be grounds for claim denial.

Even if you are not confident that your claim will be approved, it's still a good idea, according to lawyers and accountants, to submit a business interruption notice of claim to your insurer to preserve your right to recover losses in the future. Consider meeting with a local insurance attorney who can defend your interests.