Understanding Business Interruption Insurance

Understanding Business Interruption Insurance
28 Mar 2020

Many businesses carry insurance policies to mitigate financial losses in the event of business stoppages or slowdowns.

Several types of policies may cover lost profits and costs when a business cannot continue normal operations. Whether business interruption insurance covers stoppages or slowdowns caused by COVID-19 will depend on the specific language of each policy and the unique facts of each claim. A brief summary of the types of policies that may cover business stoppage or interruption due to COVID-19 is outlined below.

Business Interruption Insurance

This type of insurance provides coverage when a company must curtail normal operations. Coverage will depend on the extent and impact of the interruption, including whether the interruption resulted from physical loss or damage to the policyholder’s property, whether the company experienced a slowdown or complete stoppage, and whether the interruption was necessary or a discretionary business decision. Many of these policies contain exclusions for property damage arising from viruses, communicable diseases, or bacteria, which could potentially bar coverage if the business interruption was caused by COVID-19.

Business Interruption Insurance Coverage Extension: Civil Authority

This type of insurance may provide coverage for loss of income when an order of a civil or military authority impairs access to a company’s business operation. However, this typically requires physical loss or damage to property to trigger coverage. While a mandatory quarantine order or business stoppage order may qualify as an order of civil authority, coverage will depend on the nature of the loss or damage to the business property.

Business Interruption Insurance Coverage Extension: Ingress and Egress

This type of insurance may provide coverage for lost profits and costs incurred when a company cannot access its own property. This policy may require physical loss or damage to the property to trigger coverage, but COVID-19 contamination may qualify as physical loss or damage to property.

Contingent Business Interruption Insurance

This type of insurance provides coverage for lost profits and costs caused by business stoppage or interruption at the locations of a company’s suppliers or downstream customers. Typically, the suppliers’ or customers’ property must have suffered direct physical loss or damage, but COVID-19 contamination may qualify under the policy language. However, these policies may contain exclusions for property damage caused by viruses, communicable diseases, or bacteria, which could potentially bar coverage if the business interruption was caused by COVID-19.

Commercial Property Insurance Extensions

This type of insurance provides coverage for business interruptions caused by communicable disease or illness, crisis management and cleanup costs, or cancellation of bookings. These provisions may require presence of the communicable disease on the premises.

Third Party Liability Policies

If a third party is claiming damages related to a company’s actions during the COVID-19 pandemic, including business interruptions or stoppages, third party liability policies may provide financial relief. Such policies include Commercial General Liability Insurance, Directors & Officers Liability Insurance, Employment Practices Liability Insurance, Errors and Omissions Liability Insurance, Workers’ Compensation Insurance, Pollution Liability Insurance, and Environmental Liability Insurance.

You will want to comply with all applicable timing requirements related to filing a Notice of Claim as set forth in your policy. Insurers will review insurance claims arising out of COVID-19 with heightened scrutiny. If your business carries one of the above policies and is experiencing or may experience business interruption as a result of COVID-19, it is critical to conduct an in-depth analysis of your business policy’s language, evaluate considerations unique to COVID-19-related claims, and assess litigation risks and strategies.

If you have questions, please feel free to reach out to one of our attorneys at Ireland Stapleton.

The information provided herein is intended as general information and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.

Ireland Stapleton attorneys Kelley B. Duke, Mark E. Haynes, and Lidiana Rios contributed to this article. Our attorneys continue to review all legal developments surrounding the COVID-19 pandemic. We are operating remotely at full-capacity and stand ready to provide any needed counsel as individuals and businesses continue to navigate these uncertain times. If you have questions about how the CARES Act impacts your business, please contact your Ireland Stapleton attorney directly.