Business Owner’s Guide To Business Interruption Insurance Claims and COVID-19
When something beyond your control prevents your business from operating, the effects can be devastating.
Many businesses have business interruption insurance to protect them when a disaster occurs. Business interruption insurance can compensate owners for business losses sustained while they are trying to get up and running again.
Business interruption insurance has become a hot topic in the wake of the COVID-19 pandemic. Many business owners have been forced to close their doors or significantly scale back operations. Businesses suffering from financial hardship due to coronavirus are turning to their business interruption insurance for pandemic relief. However, insurance companies have been reluctant to cover losses based on coronavirus.
If you are unsure whether business interruption coverage is included in your business’s insurance policy or what losses it covers, it’s a good idea to talk to an experienced Florida insurance claims attorney. Your attorney can help you review and interpret your policy and determine what coverage it includes. But to get you started, we have created this guide to help you navigate the uncertainty you may face in reviewing your insurance policy, filing a business interruption claim, and resolving your claim denial.
What Is Business Interruption Insurance?
The purpose of business interruption insurance is to cover losses to your business when it is unable to operate as a result of covered damage to your property.
Repairs for property damage can be expensive. However, the losses you suffer from being unable to run your business during the repair period can be even greater. Especially if the repairs are going to drag on for a while, you may not be able to keep up with your overhead, employee salaries and benefits, or loan payments. Not to mention the profits you will lose during that time.
To make a claim, you must generally show:
- There was physical damage to your property
- The damage was caused by a covered event
- The damage is the reason you had to shut down operations
- Your financial losses resulted from the shutdown
If you meet these requirements, you can make business interruption insurance claims in Florida that will help you keep your head above water until your business can reopen.
What Is Covered by Business Interruption Insurance?
The events covered by business interruption insurance depend on the terms of your individual policy. Covered events may include:
- Water damage
- Storm damage
- Equipment failure
- Ordered shut down by civil or military authorities
Your loss of business insurance policy likely contains exclusions outlining specific events that it doesn’t cover. For example, your policy may exclude floods or earthquakes if you have not added additional coverage to your policy. Some policies also exclude closures based on pandemics or contamination.
Your policy may require a waiting period before you can make claims for certain events. For example, your policy may require your business to be shut down for a minimum number of days before it will cover losses for things like power outages or a shut down by a civil authority.
Terms can vary from policy to policy, so it’s important to review the specific terms of your policy to determine what it covers. If your insurance company has denied a business interruption insurance claim, an insurance claims attorney can review the terms of your policy to determine what options you might have to fight the denial.
What Financial Relief Can I Get from Business Interruption Insurance Claims in Florida?
Business interruption insurance typically covers losses incurred during the “period of restoration.” This is the time it should reasonably take to repair or replace the damaged property. Policy-holders may be able to purchase additional coverage that extends for some time beyond the restoration period (say, 30 days). This gives the business a little extra time to get back on its feet. Business interruption insurance claims in Florida may cover many of the following losses.
Business interruption insurance can help you keep up with your small business loans and other loan payments while your business is shut down.
Mortgages and Leases
Loss of business insurance can cover the cost of mortgage or lease payments for your premises while your business isn’t operating. It can also cover leases on equipment.
Ongoing monthly costs for things like phone service, water, and electricity may be covered by your business interruption insurance until your premises are repaired.
If you need to move to a new location either temporarily or permanently, your insurance may cover moving expenses. Your insurance can also pay for temporary costs associated with operating out of a new location, such as temporary rent.
Lost Revenue or Lost Profits
Business interruption insurance should compensate you for income that you would have been able to earn if you had been able to continue operating your business. There may be different ways to calculate this, depending on the terms of your policy. Some policies consider gross revenue, while others consider lost profits. Records of your earnings in previous months and years can be very helpful in demonstrating your losses to the insurance company.
Employee Wages and Benefits
If a disaster forces you to close your business, you may not be able to pay employee wages or benefits. Business interruption insurance can help you keep up with your obligations to your employees.
Even though your tax obligations will likely decrease when you are forced to close your business, you will still have some tax liabilities. Perhaps you were counting on revenue in the next quarter to pay your income taxes for the year or to pay a property tax that is coming due. Business interruption insurance can help make sure you can pay your taxes when you aren’t bringing in revenue.
Why Would Business Interruption Insurance Deny Coverage?
An insurer may deny your business interruption claim if it determines that your loss or its cause was not covered by your policy. The best way to determine what your business interruption insurance does and doesn’t cover is to review the language of your policy.
Loss of business insurance generally does not cover business shutdowns that are caused by something other than physical damage to your business’s property. It also will not cover anything that the terms of your policy explicitly exclude.
Basic policies are likely to have limited coverage. But if you have purchased additional endorsements (also known as riders), your policy will cover more. There are a few common endorsements that may expand your coverage if you suffer an interruption to your business.
Endorsements for Specific Events
If your insurance policy excludes a particular event, you can usually purchase an endorsement to cover it. For example, earthquake and flood insurance usually needs to be purchased separately. Civil authority interruption endorsements also usually need to be added on.
Utility Service Interruption
Often, interruptions to utility services are excluded because they are caused by damage somewhere besides your premises. A utility service interruption endorsement means that if you have to close your business because an off-site pipe breaks or a power line goes down, you will be covered. This insurance generally covers longer interruptions and may not reimburse you if utilities are down for only a few days.
Contingent Business Interruption
Businesses tend to be interdependent. A problem anywhere in the supply chain can have a ripple effect. A contingent business interruption (CBI) endorsement covers you if you lose business income due to a problem with your suppliers or receivers. For example, if a supplier’s warehouse burns down, you may not be able to get some materials essential to your business. Your CBI insurance will cover losses you suffer as a result.
CBI insurance is usually limited to losses suffered by your “direct” suppliers and receivers. If you need coverage for losses to those further from you in the supply chain, they will likely need to be identified individually in your policy.
If your business benefits significantly from a larger business nearby, you may take a hit if that business is damaged. For example, if you operate a small business in a mall and an anchor store shuts down due to flooding, this may significantly reduce foot traffic to your store. Or if you operate a hotel close to a theme park that needs to close for a time due to hurricane damage, you may see a significant drop in your bookings. A leader property endorsement will cover your losses resulting from damage to the other business.
The extent to which business interruption insurance covers losses sustained by businesses shut down due to COVID-19 is an evolving question. Insurance companies have denied many claims filed against business interruption insurance for pandemic-based losses. Insurance companies take the position that because coronavirus does not cause physical damage to property, it cannot form the basis of an insurance claim.
Business owners in Florida and across the country have filed civil actions challenging an insurance company’s denial of their business interruption insurance claim. If your business has suffered losses due to COVID-19, our business interruption claim attorneys can advise you on filing a claim and/or challenging a denial. Depending on the terms of your policy, there are several grounds we may be able to raise to support your claim.
Some courts have recognized the presence of harmful toxic substances, pollution, or bacteria as property damage under business interruption policies. Even though the damage is not permanent, contaminants can make premises useless or uninhabitable.
The terms of some emergency directives issued by cities and counties lend credence to the idea that COVID-19 causes property damage. For example, in Florida, Hillsborough County’s safer-at-home order states that the coronavirus “is causing property damage . . . due to its proclivity to attach to surfaces for prolonged periods of time and thereby creating a dangerous physical condition.”
However, some policies explicitly exclude business interruption due to contaminants from coverage. Policies may also specifically exclude losses relating to pandemics. Whether you can assert a claim based on property damage will likely depend on the specific terms of your policy.
Civil Authority Claims
Another potential avenue for recovery relies on stay-at-home orders issued by the government. If you operate a business that was ordered to shut down due to COVID-19, such as a restaurant or hair salon, civil authority coverage may kick in.
However, as mentioned above, basic policies usually do not include civil authority coverage. So you need to check whether you have a civil authority endorsement. There may be a waiting period—often 72 hours—after the order goes into effect before you can start to claim coverage. Your coverage will probably also be limited to a specific period of time—usually 30 or 60 days. Further, your eligibility for coverage may vary depending on the specific terms of your policy and the terms of the applicable stay-at-home order.
Several state legislatures, as well as members of the U.S. House of Representatives, have proposed legislation that could require insurers to pay for business losses resulting from COVID-19. However, none of these proposals have been enacted yet, and if they are enacted, they could face constitutional challenges. Thus, it remains to be seen what impact legislation may have on a business interruption claim based on COVID-19.
Why Contact Abrahamson & Uiterwyk’s Business Interruption Claim Attorneys?
The attorneys at Abrahamson & Uiterwyk negotiate with insurance companies on a daily basis, and we understand their tactics. We do not represent insurance companies. Rather, we defend our clients against oppressive insurance practices and fight to get them the compensation they deserve.
Over the past 30 years, we have recovered over $800 million for over 20,000 clients. We are rated as a “Best Law Firm” by U.S. News and World Report and regularly receive favorable reviews from our many satisfied clients. Call or contact us today to learn how we can help you fight for the business interruption benefits you are entitled to.
Frequently Asked Questions
How Do I File a Business Interruption Claim?
You can file a claim by contacting your insurance company, or you can reach out to an insurance claims attorney for help. Be sure to gather as much documentation as possible to support your claim.
How Much Does Business Interruption Insurance Cost?
The cost of business interruption insurance is affected by things like:
- The industry you are in
- The size of your business
- Where your business is located
- How many employees you have
- How much coverage you purchase
- What endorsements you need
Depending on what part of Florida you are in, you may need to consider adding flood insurance. You will also want to make sure you are adequately covered for hurricane risks.
What Do I Do If My Insurance Company Denied My COVID-19 Claim?
If your business interruption insurance claim for pandemic relief was denied, contact an attorney as soon as possible. We can help you review your policy and determine what grounds you may have to challenge the denial.