Business Interruption Insurance

Countless businesses in the US are closed or severely disrupted from a variety of causes, such as a fire, flood, earthquake, landslide, or most recently, due to the coronavirus (COVID-19) pandemic. You might already have a contract (policy) for business interruption insurance.

What Can Your Business Do?

The purpose business interruption insurance is to make you, the insured party, whole (or put back in the same position you were) despite the interruption of your business, but you need documentation of your loss, so your claim is provable, not speculative.

Does Your Policy Specifically Cover Loss From the COVID-19 Shutdowns?

We are happy to review your policy. It may not be the case that your policy specifically delineates coverage for a “pandemic” or spread of disease. Your policy language might be vague or not address this matter at all.

Still other policies exclude contamination from a pathogenic organism, bacteria, virus or disease. Your exclusion might not explicitly include the word “virus,” which could work to your advantage. Thus, a detailed review of your policy is key.

What If There is No Coverage For Interruption by

Communicable Disease?

This can be tricky. Know that business interruption claims require physical loss or damage for coverage to be triggered so any claim would need to be documented in that context. So without policy language covering a closure from a communicable disease, you may need to show physical damage for coverage.

What if the Government Made You Shut Your Doors?

Some insurance policies have restrictions for the conduct of the government or military authorities, but the fact of a government ordered closure, by itself, will not necessarily eliminate your coverage. Moreover, if the City / State makes you clean or disinfect your property, then the damage to your physical property is more easily supported, which, as said, is required to recover business interruption losses.

What Other Coverage Might You Have?

Check if you have coverage for Contingent Business Interruption coverage. Under this type of insurance, you are covered from losses due to damages to property owned by others. A more typical example might be a large tree falling on nearby property, which restricts your customer access to your premises. In the case of the coronavirus pandemic, if the virus causes damage to a major supplier, your business might be covered for losses stemming from that supply chain disruption, for example.

What Do You Need to Know in Order to Use Business Interruption Insurance?

Get a copy of the insurance policy and declaration page. Your lawyer should review the policy for potential coverage. Business interruption insurance is typically included as part of a commercial property insurance policy. Look at the policy wording, as described above.

Look for what triggers the coverage, such as when there is a “direct physical loss of or damage to” an insured’s property. Coverage might also be contingent on other things, such as whether there was involvement of healthcare, hospitality, and travel related issues. Pay attention to covered causes of loss, exclusions and limitations.

What is the Deadline?

Your policy dictates the deadline, and it may be as short as 60, 90 or 180 days to report your claim. The clock starts running as of the date of damage. You should make a phone call to your insurance provider followed up with an email or fax, but remember anything you say can be used against you.

What to Do Next?

Act quickly. You should talk to a lawyer ASAP. This article is only offered as a guide to get you thinking about these issues and exploring your rights further. Definitely get the advice of a lawyer to review your business interruption insurance policy so you can be ready to respond to any follow up questions by your insurance carrier, to help overcome denials and objections to your coverage.

What Else to Do?

Document your loss. How has the business been affected by the damage? Documentation is needed to substantiate loss of sales, customers, extra expenses (e.g., payroll, material, rent, and replacement inventory to shorten period of restoration) and hard costs (e.g., legal and accounting). Documenting sales trends and business cycles before and after the damaging event is important to show the related losses.

Ask yourself: what expenses were not incurred as a result of the loss? Consider payroll, inventory, and utilities. Identify preliminary estimated period of restoration. The period of restoration starts at the date and time of loss. It ends when the business’s income is back to “normal” (e.g., inventory or production levels return to normal). This may be calculated in days, weeks, months, or years. Mitigate your losses. Your business must attempt to mitigate losses.

An open line of communication with the insurance adjuster is key to address expected timelines for all concerned and to cover additional items. You will need to communicate how these potential extra expenses may be handled by the insurance company.

Is Your Business Partially Open, Making it Hard

to Prove the Exact Loss?

Get your documentation ready. Insured parties often need help by forensic accounting experts to document their loss of business income for insurance. Tax returns, financial statements, sales forecasts, invoices, receipts, contracts, and exports/reports from accounting systems are a good start for independent third parties to document and/or verify the loss of business income.

What to Expect, Ultimately?

You should anticipate that the insurance companies err on the side of denying your claim, but being informed and well represented can substantially help your likelihood or success. Hopefully, you will not need to take action to sue in court, but if you do, we will assist.

Your insurance carrier can be ordered to provide coverage, in certain instances, and if the carrier is found to be in “bad faith,“ you can be entitled to an award for your attorney fees, court costs, and even punitive damages.

Pittsburgh Lawyers