By Anthony Castillon-Mendoza, Attorney
Noland, Hamerly, Etienne & Hoss
Amid the chaos of a pandemic and slurry of government orders, businesses are being forced to reevaluate strategy, analyze risks, and determine their best moves to stay afloat. Business interruption insurance can help, by protecting against loss of business income, if a business is forced to shut down temporarily. However, there is no single definition of “business income” that applies across all insurance policies. At minimum, business income includes net income, before income tax, and the cost of normal operating expenses (such as payroll and utilities); some policies also include rent.
Some companies already have business interruption insurance, but don’t realize it. Business interruption insurance cannot be purchased alone – it’s an option when purchasing a commercial insurance bundle from an insurance broker. I cannot stress enough that the text of your insurance policy controls your coverage.
How does COVID-19 and the pandemic play into business interruption insurance?
Business interruption insurance can be broken down into three general categories: basic coverage (CP 10 10), broad coverage (CP 10 20), and finally, the all-risk policy. In relation to COVID-19, only all-risk policies may include coverage for viruses and pandemics. So if you’re concerned about COVID-19 resurging or want to protect against any future pandemic, the all-risk policy is your best bet. However, all-risk policies may still have exclusions to watch for.
Specifically relating to COVID-19, there are two types of exclusions to be aware of. First, some business interruption insurance policies exclude loss due to bacteria or virus. The second is what is known as the pandemic/epidemic exclusion. The pandemic/epidemic exclusion was adopted by insurance companies after the SARS and MERS outbreaks in the early 2000s. Many policies, even other insurances relating to property coverage or premises liability, have such exclusions.
Again, the specific text of your insurance policy controls whether or not you are covered in this pandemic, so it is critical to sit down with an insurance broker and an attorney to find the right policy. They can assist you by determining what policies would cover such loss and ensure your business income is protected. This careful selection process is crucial because, at the end of the day, if your policy has a virus or pandemic/epidemic exclusion, you will be unlikely to collect any replacement income.
Should You Get Business Interruption Insurance?
The short answer is maybe. Prior to COVID-19 in most people’s minds, the risk of a pandemic was minimal. No one thought anything like our current situation would happen. In fact, the last time we experienced anything like this was in 1918. Business owners need to rethink their business strategy moving forward, prioritizing the management of risk as never before. Ultimately, the heart of insurance is just that, risk management. To ensure your business risk is evaluated appropriately, read your current policy closely, ask your insurance agent questions, and have an attorney review any policy before renewing or making policy changes.
1) CP 1010 and CP 10 20 are standard forms you can search for online to see what events are covered under each insurance.
This article is intended to address topics of general interest and should not be construed as legal advice. © 2020 Noland, Hamerly, Etienne & Hoss