Does “business interruption” insurance cover lost business due to COVID-19?

Business interruption insurance may cover lost business due to the coronavirus and related government shelter in place orders. A small business can file an insurance claim due to lost business because of COVID-19. The ability to get that claim paid will mostly depend on the specific language in the insurance policy.

The novel coronavirus has caused local and state governments all over the country to close certain businesses, it has forced other businesses to close or limit operations due to a lack of customers, and the virus has otherwise interfered with the chain of supply and the basic functions of most businesses in Georgia.

Given these hardships and economic uncertainty, business owners are reviewing their insurance policies to determine if they can file a claim with their insurance company to recover for their losses or mitigate the damage. We are already seeing hundreds of claims being filed by businesses that have been negatively affected by the COVID-19 pandemic, with mixed results.

Ultimately, whether your insurance policy protects you against losses and damages caused by the coronavirus outbreak, and its ancillary effects, will come down to your insurance policy and the nature of your claim.

Does my insurance policy cover business losses caused by the coronavirus pandemic?

Many businesses have filed claims with their insurance companies based on business interruptions and losses caused by the COVID-19 pandemic and the state and local government regulations closing businesses or limiting their operations.

Like any business contract, however, whether your insurance policy covers losses stemming from the coronavirus pandemic depends on the specific language of your policy. That means that any question regarding the scope of your insurance coverage should start with reading the terms of the actual insurance policy. Some insurance policies, for example, cover all risks of physical loss or damage to your business or property, while others only cover losses or damages if they are caused by specific events that are identified in the policy.

In determining what your insurance policy covers, courts, lawyers, and businesses must apply certain rules of interpretation.

  1. An insurance policy is to be interpreted broadly by courts in favor of providing coverage.
  2. Exclusions of coverage in an insurance policy are to be interpreted narrowly and against the insurer. The insurer has the burden of proving that the exclusion applies and that they do not have to provide coverage.
  3. Ambiguities in an insurance policy should be resolved in favor of providing coverage to the insured.

How do I file an insurance claim based on business losses caused by the coronavirus pandemic?

If your insurance policy covers losses from business interruptions, civil authority actions, or physical loss or damage to the business’s property, you may have a valid insurance claim to recover your losses. The scope of these claims depends on the language of the policy and the circumstances surrounding the business losses.

Business interruption insurance, for example, generally covers a business’s loss of income when they are forced to close or limit their operations due to problems in the supply chain, reduced demand, or damage from a natural disaster, such as a fire or hurricane. It is intended to cover the income your business would have brought in if it could continue operating, and it can also cover expenses such as taxes, payroll, and debt repayment.

In the context of the COVID-19 pandemic, business interruption coverage may cover losses caused by supply problems or reduced demand, which in turn may be caused by stay-at-home orders, business shutdowns, and the public’s general fear of going out during the coronavirus outbreak. Businesses seeking to file a business interruption insurance claim should pay close attention to the language of the policy, however, as some business interruption insurance policies specifically exclude losses caused by pandemics. Some insurance policies also have “force majeure” clauses that excuse the insurance company from providing coverage if the loss was caused by an unforeseeable event or an “act of God.”

Likewise, policies can differ in whether they explicitly provide civil authority coverage. Civil authority clauses in insurance policies address whether the insured will be reimbursed for losses stemming from actions taken by a local, state, or federal government that interrupt your business’s operations, such as the stay-at-home orders and shutdown orders we are seeing from local and state governments during this pandemic. Under a civil authority clause, shutdown businesses may be able to recover some of the losses they have suffered.

Some insurance policies are also limited to providing coverage for business losses caused by physical loss or damages to the business’s property, such as those caused by fire or natural disasters. Courts have not decided on a definition for “physical loss or damage,” however, and an experienced insurance claim attorney can make a strong argument that the COVID-19 pandemic and resulting government actions have made the business’s property “unfit” for its intended use or have “deprived” the business of its property. These might constitute physical loss of the property. There does not necessarily have to be physical damage to the property to file a claim.

Can I still file a claim based on the COVID-19 outbreak if my insurance policy excludes viruses or pandemics from coverage?

Even if your insurance policy contains language stating that losses caused by contagious disease outbreaks or pandemics are not covered, your insurance company bears the burden of proving that your claim is specifically excluded by the insurance policy.

As discussed above, exclusions and exceptions to coverage are interpreted narrowly, and courts must interpret policies in favor of providing coverage. In rare cases, courts have also struck down similar clauses based on emergency circumstances. It is worth reviewing your policy with an experienced insurance claim attorney to determine whether you have a valid claim.

Can I file a bad faith claim against my insurance company if it refuses to pay or investigate my claim based on COVID-19?

When an insured has paid their premiums and filed a claim for a covered loss, an insurance company that refuses to pay or investigate the claim is acting in “bad faith” and the insured will have a “bad faith claim” against the insurance company.

You may be able to recover significant damages if you have a bad faith claim against your insurance company. To win in a case involving a bad faith claim against an insurance company, you will generally have to prove that the insurance company acted illegally, negligently, or in reckless disregard of your rights. Common bad faith claims include:

  • Giving incorrect or misleading advice to the insured
  • Misrepresenting the law to the insured
  • Denying a legitimate claim without a valid reason
  • Failing to investigate a claim made by the insured
  • Unreasonably delaying payment or investigation of a claim
  • Intentionally undervaluing the value of a claim
  • Not paying the full amount of the claim without a valid reason

Insurance companies are sophisticated and often have an army of lawyers advising them, meaning they will do anything they can to reduce the claims they pay out while finding ways to argue that they are not operating in bad faith. That is why it is important to be familiar with tactics that insurance companies may take that may not technically constitute “bad faith,” but which can reduce the value of your claim or excuse the insurance company from paying the claim. These tactics include obtaining unfavorable valuations or medical opinions that undermine your claim, offering you a quick settlement that doesn’t fairly value your claim, and investigating other ways to damage your claim.