Does business interruption coverage provide protection during a pandemic?

As commercial property owners and their tenants continue to seek new ways of coping in a COVID-19-weary world, they are looking at ways to recoup some of the losses incurred as a result of preventative shutdown and isolation measures. One area getting a lot of attention is Business Interruption/Income Insurance (BI).

Designed as a means of covering physical damage or physical loss, BI is typically an add-on to commercial property insurance policies. While that certainly seems pretty black and white, there are gray areas—and COVID-19 is shining a spotlight on the gray. The question for policyholders, carriers, courts, and governments involves determining how and if a pandemic meets that standard.

Three critical areas of business interruption insurance

Generally speaking, there are three key areas when it comes to BI:

  • Business income coverage provides for sustained loss of income due to a suspension of operations by a covered cause that resulted in the physical loss or damage to the policyholder’s property.

  • Contingent business interruption coverage extends sustained-loss coverage to when the physical damage occurs at another property, such as at a customer or supplier. Any damage that impacts the income of the policyholder may be covered, as long the damage is listed as a covered cause in the holder’s policy.

  • Order of civil authority coverage provides for BI losses when a civil authority prohibits or impairs access to the policyholder’s property.

Policy language and COVID-19 coverage

It almost goes without saying that policyholders and insurers are currently at odds—or will be for years to come—as a result of COVID-19 and the terms of BI coverage. In the vast majority of cases, the resolution of any disputes is based on the wording in individual policies and previous court decisions.

  • The first prevailing concern is the idea of “covered cause.” Most BI policies are cause-specific, and many of the reasons leading to a claim are disaster-related, such as hurricanes, earthquakes, or fires. Crucially, as a result of the 2003 SARS outbreak, the insurance industry added an “Exclusion of Loss Due to Virus or Bacteria Endorsement” to most BI policies, which likely means the pandemic won’t be covered. In addition, courts have ruled in the past that contamination does not necessarily constitute “physical damage,” a term that is critical in filing a BI claim.

  • This same idea applies to contingent interruption coverage. Again, this is a loss incurred by the policyholder as a result of physical damage elsewhere, such as at a supplier. These claims can only be filed if the damage is listed among the specifics. And, depending on the policy—a virus is likely excluded and not a listed reason.

  • As property owners find the margin for filing a BI claim shrinking, many might look to submitting a claim under the civil authority clause, since this clause does not necessarily require physical damage. Again, looking at previous court decisions, claims filed here were typically rejected because it was determined these orders were issued to prevent future damage or—in the case of COVID-19—to protect the labor force. There is a case in Louisiana, however, in which a restaurant is claiming that the state’s COVID-19-related public gathering restrictions triggered the civil authority provision.

What a policyholder can do now

Despite the intricacies of policy language and what may be some lengthy legal battles over claim disputes, it’s imperative for policyholders to be proactive—because that’s what insurers are also doing.

  • Contact your insurer and request a complete copy of your insurance policy. Once in hand, look for the phrase “cause of loss to trigger coverage.” From here, check to see which coverages are included in the policy and the length of time of each. Look for the “Exclusion of Loss Due to Virus or Bacteria Endorsement” exclusion.
  • In addition to BI policies, it’s also important to review other insurances, such as general liability, pollution liability, workers’ compensation, and employment practices liability. It cannot be stressed enough that the current pandemic is uncharted territory, and it’s better to be prepared than to be surprised by anything that may or may not be covered.

Behind the scenes and out front

While this is sure to be a litigious process for some time and rates may certainly rise, there are also efforts happening behind the scenes to help ease the burden on policyholders and carriers. More than likely, the federal government will negotiate and pass additional stimulus packages while working with the insurance industry to create a solution to assist businesses. At the state level, bills have been introduced to address COVID-19 and BI coverage.

A legislator in Massachusetts, for example, introduced a bill that would “require insurance companies in the state to provide business interruption insurance to policy holders whose businesses have been negatively impacted by COVID-19.” Similar measures have been proposed in New Jersey and Ohio.

The insurance industry is fighting these efforts, however, for simple, fundamental reasons that go way beyond safeguarding their profit margins. Most policies have an exclusion for viruses; any legislation that alters the terms may violate the Contract Clause in Article I of the U.S. Constitution; and there simply won’t be enough money to pay out all such claims. Some form of federal assistance will be necessary, whether it flows through the insurance industry or not.

We know this is a lot digest, and we certainly understand how your anxiety may be shooting off in different directions. But as we’ve said from the start of this emergency, the team at Morris Southeast Group believes that commercial real estate investors and tenants will get through this crisis.

And we are here to answer any questions you may have. Call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at


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