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You may assume your business insurance policies mitigate your risk of loss during unavoidable catastrophes like the COVID-19 pandemic. Unfortunately, every policy is unique, and some may support your business better than others.
Essentially, insurance policies function like business contracts, each with its own terms and conditions. As a contract, an insurance policy has limitations and exclusions that apply differently depending on the circumstances.
How Does Business Interruption Insurance Work?
If a policy were to protect you against COVID-19-related losses, it would most likely be business interruption insurance. This may be its own policy or, in some cases, a rider, which is a customized attachment that adds benefits or adjusts the terms of an existing policy. As the name suggests, business interruption insurance covers losses resulting from certain disruptions to regular operations.
In most cases, this type of insurance will only provide coverage if:
- A certain condition is met; and
- A certain type of loss occurs.
Understanding the Conditions of Your Business Interruption Policy
While a policy may not include specific language referencing the coronavirus, it may contain a more broad category that encompasses our current global crisis. For example, the policy may reference a contagious illness and/or pandemic.
If your business interruption insurance does not specifically cover COVID-19, it may be triggered by events like stay-at-home orders or other forms of quarantine. Many policies include phrases such as “any civil authority action,” which would most likely apply to a government-mandated quarantine or business shutdown. In these instances, the difference between a required shutdown and a suggested shutdown may be pivotal.
Identifying the Losses Covered by Your Business Interruption Policy
Generally, the above conditions must directly cause certain damages in order for the insurer to cover those damages. If, for instance, your business was already on the brink of bankruptcy before the shutdown, you may not be able to claim that COVID-19 caused your losses. In another example, a business may not be covered if their policy only applies to situations like food contamination, which could not be a direct result of COVID-19.
Since the onset of the pandemic, many insurers have expressly stated that either their policies exclude viral infections or they will not cover losses because physical property damage has not occurred. Some legislators have fought to compel insurance companies to cover business’ losses resulting from COVID-19, but this fight has not yet been successful.
That said, every policy is unique, and our team at Purdy & Bailey, LLP urges you to take action as soon as you have suffered a loss. We can help you assess your policy to determine whether you may be protected. If you have, you will need to file a claim immediately, as the failure to take prompt action can forfeit your eligibility for coverage.
Interpreting business insurance policies can be an extraordinary challenge without support from experienced professionals. Purdy & Bailey, LLP can review your policy and recommend the best possible course of action. Get in touch with our firm today by calling (858) 360-7080 or contacting us online.