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Coronavirus And Business Interruption Insurance

As the coronavirus prompts mass business slowdowns and closures, many companies are scrambling to make up for lost profits and find a way to meet fixed expenses. One of the questions I’ve been getting is whether property insurance policies may provide a means for recouping lost profits. For some businesses, a business interruption policy could provide relief here.

Related: Coronavirus And Force Majeure Clauses In Commercial Leases

Business interruption insurance is a type of property coverage for disasters, which is often added to a commercial property insurance policy. While a commercial property policy is meant to cover physical damage to the building, a business interruption policy is meant to cover the income the business would have had but for the disastrous event. It also covers related costs.

So, does the coronavirus constitute a disaster triggering business interruption coverage? The answer likely depends on whether the policyholder’s property is physically damaged. Simply shutting things down in response to the coronavirus (even if mandated by the authorities) likely won’t meet this threshhold. Conceivably a shutdown due to a contamination could meet the threshhold but even that is debatable.

Note: A business interruption policy may include civil authority coverage, which extends coverage for loss of income when a civil authority (e.g., the governor) prevents access to the property; however, this coverage typically still requires a showing of physical damage to the property.

Even if physical damage is shown, business interruption policies often have exclusions for damage arising from viruses, communicable diseases, and the like, which presumably the coronavirus would fall under.


Related: CARES Act: Paycheck Protection Program

However, do review your policy carefully, as some include endorsements that don’t require physical damage and that do cover losses caused by viruses, illnesses, or communicable diseases, among other things.

Tip: Coverage extensions that cover viruses and the like are most often found in industries where this is seen as a higher risk (e.g., healthcare).

If your policy contains this kind of endorsement, you may be in a position to recoup lost profits and costs due to the coronavirus. Please get in touch if you’d like assistance.

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