Truth is confirmed by inspection and delay;
Falsehood by haste and uncertainty.
-Tacitus
Business Interruption (BI) insurance protects a business from economic losses when a business cannot continue its normal operations. Standard BI language reads “We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration.”
Does BI insurance cover covid-19? You must analyze coverage to answer that question. Forewarning: it gets complicated.
Basically 3 conditions must be met before a insurance company will pay for a BI claim:
- Direct physical loss or damage must occur;
- Direct physical loss or damage must occur on the insured property; and
- The BI loss must result from a covered peril.
Regarding the first two conditions, there must be physical damage to a business’s tangible property (e.g. a bakery’s ovens are burnt by fire).
As to the third condition, the cause of the BI loss must be from a covered peril. Perils are causes of loss like fire, theft, or wind. The perils covered depends on the policy. A named-peril policy only covers perils named in the policy. An all-risk policy covers all-perils unless excluded.
Here’s a classic example of BI coverage. A bakery has a commercial policy that covers BI and includes fire as a covered peril. A fire burns the bakery’s ovens and the bakery shuts down its normal operations for 3 weeks, losing $5,000 in business income. The bakery should have a valid BI claim for $5,000 because its tangible property, ovens, were physically damaged by fire, a covered peril.
Apply that analysis to a business and covid-19. Was there physical damage to a business’s tangible property? If so, was the loss caused by a covered peril? In most, if not all, cases dealing with covid-19, the answer seems to be no. Therefore it doesn’t seem that BI insurance covers covid-19.
Is that it? Not necessarily.
Some policies extend coverage to civil authority orders, ingress and egress to covered property, and contingent BI.
A policy with civil authority order coverage allows a business to make a valid BI claim even if the first two conditions are not met. The third condition, however, must be met: a covered peril must have occurred and the order must be given because of physical loss from a covered peril. A policy with ingress and egress to covered property coverage allows a business to make a valid BI claim even if the first two conditions are not met, as long as a covered peril prevents a business from accessing its property. Finally, contingent BI coverage allows a business to make a valid BI claim if a covered peril causes physical loss to third parties named in a the policy (e.g. suppliers, buyers).
Then, the third condition must be met for a valid BI claim. So the question becomes – is covid-19 a covered peril?
Since the early 2000s, insurance companies began excluding losses due to virus, bacteria, or pandemics. Some insurance polices have them, others don’t.
To answer the question we began with – does BI insurance cover covid-19?
Possibly it could, especially if there’s civil authority order coverage and losses due to virus, bacteria, or pandemics are not excluded.
Have questions? Contact Me for a free consultation.
