As a small business owner, you probably have a million things on your mind right now. Even if you have been spared so far, the COVID-19 pandemic is likely to cause slowdowns or interruptions to your regular spring business. In fact, the effects of the virus are projected to cause drastic changes to businesses—large and small—across almost every industry line.
But there may be one silver lining—and you may not even know to look for it.
Does your insurance policy have a clause for business interruption? Your saving grace may already be available in the fine print of paperwork propping up the corner of your break room coffee maker. We highly recommend taking a minute to find your latest insurance policy details and take a look. In the meantime, here is everything you need to know about business interruption insurance.
What is Business Interruption Insurance?
Business interruption (BI) insurance is a type of insurance that protects against lost income and other expenses due to a disaster-related closing of a business facility or due to the rebuilding process after a disaster. This ensures that a temporary shutdown due to circumstances out of your hands doesn’t become a permanent closure.
Major and minor disasters covered mirror your property insurance policy and typically include theft, fire, wind, falling objects, and/or lightning. However, policies may differ considerably based on the cause and length of business interruption. Coverage typically lasts for 12 months.
What does Business Interruption Insurance Cover?
As mentioned above, BI insurance can cover a variety of tragedies that interrupt the regular pattern of your business. Natural disasters covered may include fire, wind, lightning, and other forces that cause physical damage to the facility. Policies may also cover theft or modern business interruption damages such as cyber attacks.
BI may also provide coverage for non-physical facets of your business, such as rent or lease payments, loan payments, employee wages, relocation costs, and taxes. For example, in California, we have seen tenants use BI to pay their rent after a major fire.
BI insurance typically does NOT cover short-term interruptions that are outside the scope of your property insurance. Power outages or partial interruptions, such as scaled-back operations, are typically not covered. BI also does not in and of itself cover material property damage, losses unrelated to property insurance, contingent business interruption, or other expenses.
Who Needs Business Interruption Insurance?
Since business interruption insurance is triggered when there is “direct physical loss” to your business’ property, not every small business may benefit equally from coverage. If you are a worker in the gig economy, you operate your business from a shared office space, or you otherwise don’t have a brick and mortar footprint, you probably don’t need BI coverage. However, businesses that operate out of physical facilities, from restaurants to retail storefronts and event spaces, would benefit from BI.
Does Business Interruption Insurance Cover the Coronavirus?
It’s the question we’re sure you’re wondering. Sure, it’s obvious when a business has to shut down because of fire damage. But what about COVID-19?
Unfortunately, the answers there are much less positive, but also somewhat more unclear.
On March 16, the National Law Review advised that the issuance of local, state, or national states of emergency may trigger BI payouts, even though COVID-19 may not result in “direct, physical loss.” However, just two days later, the NLR clarified their statement. Since the SARS epidemic in the early 2000s, insurers began to exclude the economic losses attributed to viral or bacterial outbreaks. Indeed, we’re seeing from New Jersey to Louisiana, insurers are already denying claims arising out of the current pandemic.
Although we’re seeing large-scale closures across the nation, most closures are a result of government mandate and not physical contamination. Your policy may or may not cover such closures, depending on how it is written and how generously it is interpreted. As a result, many businesses are finding that their coverage is insufficient to carry them through the COVID-19 pandemic. Only ensuing litigation will tell whether policyholders or insurers will win out in the end.
The NLR ends on this word of advice:
But, coverage depends on the particular policy, and a policy review is worthwhile. Not all insurance policies are equal in the coverage they provide. The old adage that you get what you pay for often rings true with insurance policies because more expensive policies often provide better coverage than lower cost policies. Also, coverage for COVID-19 related losses might depend on whether the policy provides business interruption coverage as a basic term of the policy, or as an endorsement. An endorsement will often provide broader coverage than the base policy because of the additional premium for the endorsement.
If you think your policy covers you right now, there is little downside to submitting your claim, just in case.
Need Help Reviewing Your Policy for Business Interruption Coverage?
If you haven’t already, now is an important time to review your insurance policy for BI coverage. An existing BI clause in your policy could make a huge difference to keeping your business afloat in the coming months. And it could mean the difference in whether or not you are able to rebuild your business to pre-COVID-19 levels once the virus has been controlled.
Need help reviewing your policy? At NAI Beverly-Hanks Commercial, we continually strive to provide you with the expertise you need in times of ease and times of strife. Our commercial real estate agents have a diversified skill-set, offering years of commercial real estate experience.
Contact us today to speak with an NAI Beverly-Hanks real estate agent about reviewing the terms of your property and business interruption insurance.