BUSINESS INTERRUPTION AND THE CORONAVIRUS
THE COVID-19 SMALL BUSINESS ECONOMIC LOSS CLAIM
Many businesses around the country are suffering drastic and unexpected revenue reductions related to the coronavirus (COVID-19) global pandemic. As these companies search for ways to continue operating and paying their employees, they may be overlooking insurance coverage for which they have been paying premiums. Business interruption loss coverage is a common form of commercial insurance that may be contained within or provided as a rider to commercial general liability policies, property and casualty policies, or other business insurance policies.
Some companies may have this coverage and not realize it without checking the declarations page of all their policies. Assuming the coverage is available, the question becomes whether a company may file a business interruption loss claim to recover lost business income caused by the ongoing public health crisis. Whether losses related to the COVID-19 crisis are recoverable under a specific business’s insurance policy will largely depend on three factors.
1. Policy Language. While every policy may be different, typical business interruption coverage applies when the policyholder suffers some direct physical loss or damage to property insured under a property policy as the result of a covered cause of loss. Businesses generally think about this coverage—for which they often pay steep premiums—in terms of traditional physical loss to their business property, such as loss caused by a hurricane, tornado, or other natural disaster. However, some courts have held that coverage for business interruption could extend to commercial property that becomes uninhabitable or unfit for its intended use. These courts have held that such a loss can satisfy the “physical loss” requirement for traditional business interruption claims. Under this theory, there may be a valid argument for business interruption claims for businesses whose commercial property can no longer be utilized as a result of the COVID-19 crisis.
Some policies also extend business interruption coverage to revenue losses caused by disruption of the business’s customer base or supply chain. Other policies provide coverage for interruptions resulting from actions by a local or state government that prevent access to the insured property. Still other policies extend coverage to losses caused by communicable or infectious diseases, without requiring physical damage to the actual physical business property. In contrast, many policies have a so-called virus exclusion.
2. Documentation. If a company’s policy provides a path forward for a successful COVID-19 claim for business interruption losses, thorough documentation within certain deadlines will likely be critical. If this is the case, then whether you can successfully pursue a COVID-19 claim for business interruption will depend largely on your business’s documentation and communication.
3. Calculation of Losses. Whether a business ultimately recovers all of its covered business interruption losses from the COVID-19 crisis will depend on the methods employed to calculate the recoverable financial loss. The most commonly used language refers to the business’s losses due to interruption “net plus,” which calculates the net profit that the business would have earned but for the COVID-19 claim before income taxes, plus the expense of normal continuing operations of the business that were unavoidable during the loss period. A company experiencing business interruption losses due to the COVID-19 crisis must understand the method under which its business interruption costs are calculated as soon as possible. Most likely, any successful COVID-19 claim due to business interruption will not only require the prompt analysis of insurance coverage attorneys, but may also require the hiring of forensic accountants to establish the real amount of lost business associated with this public health crisis. Businesses must be sure to plan ahead by consulting legal and financial counsel to ensure that they are taking all appropriate steps to establish a well-formulated COVID-19 claim for business interruption.
The bottom line is that any business may have insurance coverage for its business interruption losses, and every insured business should receive the benefit of coverage for which it has been paying premiums.
Riley & Jackson understands the nuances and complexities associated with business interruption claims. Please do not hesitate to reach out to any of our attorneys if you believe your business may have suffered business interruption due to the COVID-19 crisis.