Langston & Lott, PLLC
Coronavirus Business
Insurance Coverage FAQs

Many property casualty policies come with "Business Interruption" coverage, "Chain Supply Interruption" coverage, or "Contingent Business interruption" coverage. Any one of these may entitle you to compensation for your financial losses as a result of the COVID-19 pandemic. These polices are typically included with a property casualty policy and not an additional, separately sold coverage.

Business interruption insurance covers lost profits, operating expenses and extra expenses when a disaster or some other unexpected event forces a business to slow operations or temporarily shut down while also covering the expenses to restore normal business operations. This insurance may replace income you lose during a slowdown or shutdown, allow you to continue paying yourself and your employees, and cover expenses until you’re back in business. Generally, these policies cover income you’ve already lost from a disaster or unexpected event, and they may also cover the things you’ll need to keep your business operating going forward. The net result or goal of business interruption insurance is to make the business “whole” should a disaster or some other unexpected event occur.

This coverage helps cover losses that impact an insured’s ability to conduct business. Many CBI policies require that damage must be suffered by a direct supplier of goods. If your direct supplier is located in China and that business has been shut down, for whatever reason, then that is a classic supply chain issue. This type of coverage would not be subject to a communicable disease or virus exclusion (see more on that below).

Most business interruption policies have exclusions for damages caused by communicable disease outbreaks. Not all policies, however, will have a communicable disease exclusion. Even if your policy does have such an exclusion, certain state and local governments are considering legislation to override the exclusion. New Jersey is considering legislation to invalidate those exclusions and force insurance companies to pay business interruption claims. New York has specifically passed legislation relating to property damage as a result of COVID-19. Lawsuits have already been filed on those pieces of legislation, and those outcomes will determine whether a government official/body is allowed to enact such legislation.

Based on what I’m seeing so far, probably not. Most insurance companies are preemptively denying the claims to avoid losses if COVID-19 is mentioned. Many insurance policies that contain some version of business interruption coverage will use the term “direct physical loss or damage” as a threshold coverage requirement. Some insurance adjusters are claiming that the coronavirus cannot meet that requirement because a virus does not cause “structural” damage like fire or a windstorm. Most property policies, however, are “all risk” policies designed to cover damage from any risk that is not otherwise excluded. Some policies provide coverage for loss caused by a government order, regardless of whether there is structural damage to the insured property. Court decisions have also interpreted “physical loss or damage” broadly to include biological contamination or even future physical loss. In many cases, agents (either intentionally or unintentionally) may be misleading business owners about the coverage available to them. I believe agents should avoid making assumptions about whether business loss coverage is available to their insureds without first conducting a thorough investigation of the facts, policy language, and the law.

I have not seen any insurance company voluntarily pay a business loss claim so far. Based on my experience with the insurance industry, I do not believe insurance companies will pay out billions of dollars on business loss claims without a fight.

Even if you don’t yet know if you have coverage, tracking your losses is important. Think about every way this crisis is impacting your business. Detailed accounting may be needed down the road, but basic recordkeeping and documentation of the loss is important right now. You may also need that information for taxes or government relief measures. If you have a bookkeeper who uses accounting software, such as QuickBooks or something more robust, consider tracking a new expense item entitled “COVID-19” record expenses you incur specifically associated with this outbreak under that expense category. Make detailed notes of revenue lost and do your best to explain how that lost revenue relates to the COVID-19 pandemic. In short, continue your business accounting function as best you can and tie the numbers to the coronavirus pandemic where you can.

Government orders may be helpful in that a specific order can make it easier to trigger civil authority coverage under some property policies.

I suggest erring on the side of caution and giving your insurance company notice of a claim early, even if you’re not sure if you have one yet. You don’t want to lose coverage of a valid claim based on a late notice argument. If you think you may have a covered loss, I suggest you talk to a lawyer before contacting your insurance agent or company. Your attorney should make sure you’re considering all possible lines of coverage. For example, some pollution policies and event cancellation or crisis management policies have broad grants of coverage with limited exclusions. My advice would be to collect your insurance policies and take them to your lawyer for he or she to review. If you do not have a copy of your policies, request a copy from your agent, then schedule a consultation with your attorney.