Does Business Interruption Insurance Cover Covid-19?

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:

  1. Direct physical loss or damage must occur;
  2. Direct physical loss or damage must occur on the insured property; and
  3. 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.

Evan Walker

Evan W. Walker is a La Jolla attorney who has practiced law since 2008. He has practiced law throughout California, Connecticut, and Louisiana.

Evan worked for and defended insurance companies during the first 7 years of his practice. Since 2015, he has represented people with personal injury and property damage claims and insurance disputes.

Evan’s practice is devoted to serious personal injury claims and catastrophic property damage claims. Areas of focus include security claims against bars and other businesses, government tort claims, fire and flood claims, and inverse condemnation. On behalf of clients, Evan has fought insurance firms, international companies, cities, bars, and casinos.

Evan regularly shares his expertise with other attorneys by teaching courses on insurance and inverse condemnation. He has taught several continuing legal education courses to Attorney Credits, a nationwide CLE company, and ProLawCLE, another nationwide CLE company. He also contributes to various podcasts and publications.

Associations:

  • Member, State Bar of California
  • Member, San Diego Bar Association
  • Member, Consumer Attorneys of California
  • Member, Consumer Attorneys of San Diego
  • Member, La Jolla Bar Association
  • Member, La Jolla Village Merchants Association
  • Member, San Diego Chamber of Commerce