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28 Apr 2020

Business Interruption Insurance: Will It Cover Losses from COVID-19?


Scott Zucker

Founding Partner

All businesses, not just self storage businesses, are suffering from the loss of revenue incurred during the virus's shutdown of our economy. From "shelter-in-place" governmental orders that impact new business opportunities to employment lay-offs that correlate to increased delinquencies, the measure of losses from this pandemic will be significant.

Business Interruption Coverage

So, an obvious thought occurring to many operators might be whether these types of losses would be covered under the business's insurance policy. Obviously, the business is suffering a loss, even more specifically an "interruption", for which the business is not responsible. It would seem logical that this unanticipated pandemic would be considered an occurrence triggering the right to make a claim for the demonstrated losses measured against a similar time period in previous years.

But wait. Your insurance provider likely has a different opinion on the matter. Most general liability insurance policies, even those with business interruption coverage, have a long list of exclusions. Keep in mind that nowhere in your policy will you likely see a specific reference to an exclusion for a virus or pandemic that forces the closing of your business (although you will likely see that in the future!). Instead, the discussion over coverage will rely on a reading of multiple sections of your policy and how they interact under the facts of your particular claim. This is an example of a response you might receive if you make a claim:

  1. Pollution Exclusion

The definition of pollution can be very general, but it would likely include "gaseous contaminants or irritants". The point would be made that a virus "in the air" could be argued as being the same as a gas leak, smoke, fumes, chemicals in the air, etc. and would be excluded from coverage.

  1. Physical Loss or Damage

Your policy might require as an element of the business closure that there first must be direct physical loss or damage to your property that causes the closure and that the loss or damage resulted from a covered cause of loss.

Contingent Business Interruption Coverage

Instead of the argument that your property was damaged, there are possible claims to be made that, due to damage to a third party involved in your business, your business has suffered. Typically, the type of damage that would be covered under this contingent policy would have to be similarly covered within the insured's policy and similar exclusions to those referenced above may apply. Also, the claim would have to arise from your loss of business income directly due to the loss or damage of direct suppliers to your business or direct receivers of your business (arguably your "customers").

"Civil or Military Authority" Coverage

You should check to see if you are covered for business interruption losses caused by "civil or military authority", which is coverage for actual losses sustained when access to a business is prohibited by an order of civil authority. Certainly, due to "shelter-in-place" orders imposed by both state and local municipalities, an argument could be made that your business operations were stopped by the mandates issued by your applicable governmental authorities. Again, however, the policy and the insurer might require that, for the coverage to be triggered, there must be physical damage to the business as well. Other issues to be considered under this coverage would be whether direct access to the property was imposed (some self storage facilities have been listed as "Essential Businesses") and whether there was any physical damage to your property.

If your insurance company agrees that you are covered for these interruptions, the coverage would typically include payment for the actual loss that is sustained including necessary repairs, the loss of business income (net profit or loss before taxes) suffered during the period that the business is shut down and, if included, coverage for the period of restoration or time required to rebuild the property for operation.

This is an unusual time and business revenue losses will cut deep. Based upon the uniqueness of this virus, the federal, state and local emergency orders and the policy you have and the riders that you have paid for, there may well be coverage available to you to help you recover from your business losses. But every policy is different and the facts surrounding each loss claim incurred will be different. The general advice would not be to simply assume you don't have coverage, but to at least ask. There is no prohibition to a business making a claim to its insurance company as long as it is made in good faith. It is certain that, due to the unique circumstances of this pandemic and what we may continue to face, lawsuits will proceed to clarify the rights for operators seeking a remedy under these coverage provisions for losses suffered in this pandemic.

Should you have any questions on interpreting your state or local laws or operating your business during this unprecedented time, please do not hesitate to contact us.

Stay Safe!

Thumbnail: Photo by Jametlene Reskp on Unsplash

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