COVID-19 and Business Interruption Insurance: What You Need to Know

As the COVID-19 pandemic continues to inflict enormous damage upon the restaurant and hospitality industry, several restaurants across the country and right here in Chicago are suing their insurance companies for COVID-19-related losses. These restaurant owners believe that business interruption insurance, a special policy that covers income lost to disasters, should also cover work stoppages due to the novel coronavirus outbreak. However, it appears that insurance companies disagree, arguing that because the disease does not physically damage a restaurant, coverage does not apply. Further, this matter is not limited to restaurants. With their businesses closed as a result of the state's stay at home order, many industries, like retail, manufacturing, entertainment, hospitality and technology are turning to their property and business interruption insurers for relief.  

While relief under these clauses is currently up for debate, here are the steps to follow if you intend to try to collect under the Business Interruption Clause of your policy:

Talk to your insurer: Many insurance policies and endorsements cover losses due to business interruption. It is clear that COVID-19 has seriously interrupted business in America. But the real question is whether or not insurers consider the virus to be “physical damage.” In essence, it’s that delineation that triggers the business interruption clause in an insurance policy, which explains why this is such a hot topic right now in the insurance industry at large and in multiple states. Additionally, an “All Risk” insurance policy does not ensure coverage either. Those types of policies sometime exclude coverage for virus, contagious disease or bacteria. In that case, any COVID-19-related claims will likely be denied.

How do you know if your policy covers business losses due to COVID-19? It all comes down to the fine print.

  • Request a complete copy of your insurance policy. (The one you have on hand is likely a partial policy). You’ll need to make the request in writing to your insurance broker or insurance company. Make sure you ask for a certified copy of your policy including all endorsements, which will include every single clause, provision, exception, inclusion, and the like. 

  • Once you’ve received the complete policy, look for this key phrase: “cause of loss to trigger coverage.” That phrase will be your guide to determining your COVID-19-related claims.

  • Check if you have the following coverage—and for how long:

  1. Business interruption

  2. Ordinary payroll

  3. Extended period of indemnity

  4. Civil authority (note, local government enforcing a “safe at home” policy counts)

  5. Contingent business interruption

  6. Contingent extra expense (this reimburses lost profits and expenses resulting from an interruption of business at the premises of a customer or supplier)

  7. Ingress/Egress (this pays for the loss of income triggered by physical loss or damage caused by a covered peril to third-party property that prevents or hinders ingress to or egress from the insured's business)

Make a demand in writing to your insurer for coverage and payment: If you are deemed covered, then you will be paid. If not, you will at least have a clear paper trail should you decide to file suit.

Businesses and insurers are in uncharted territory right now with COVID-19. There will be plenty of cases of clear coverage, and unfortunately there will be denied coverage, too. As for the cases of questionable coverage, that debate has only just begun. This matter is currently playing out in both the judicial system, with lawsuits filed across the country, as well as in several state legislatures and in Washington D.C., where pressure to force insurers to pay out under these clauses appears to be growing. Illinois state legislators have yet to take a formal position, but they have informed us that they are watching this matter closely. 

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