Business interruption (â€œBIâ€) protection is typically included in commercial property insurance policies issued to millions of small businesses. The coverage has historically been provided to offset lost income from the damage or destruction of the businessâ€™ insured property (i.e., fire). However, in the wake of the COVID-19 crisis, businesses are starting to make claims under commercial property policies for BI and civil authority (i.e., stay-at-home orders) coverage. Notwithstanding this, the insurance industry has made it clear that COVID-19 is not a cause of loss anticipated under BI coverage because of the lack of direct physical loss to the insured propertyâ€”the virus can be wiped off property. Additionally, in 2006, the Insurance Services Office (ISO) issued a virus and bacteria exclusion, which is included in many commercial property insurance policies:
We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.
Commercial businesses seeking coverage for COVID-19 related losses have started filing declaratory judgment actions in state and federal courtsâ€”these lawsuits can offer insight into policyholder strategies. We understand that the American Property Casualty Insurance Association (APCIA) estimates that there could be as many as 30 million claims from small businesses related to COVID-19 losses if legislatures mandate coverage nationwide, and the insurance industry would not have the reserves to pay out for all these BI claims. A group of restaurateurs (led by Chef Thomas Keller) and a property policyholder attorney formed the Business Interruption Group (BIG) â€“ a nonprofit that insists insurers pay owed business losses caused by COVID-19.
So with so much uncertainty over the claim acceptance process, what is the incentive for businesses to take action now? Simply stated, if insurers are legislatively mandated to accept and process BI claims, being â€œfront of the lineâ€ may increase your chances to receive payment should insurers face financial limits on what the could handle if ordered to pay.
The REDW COVID-19 Task Force recommends acting now to assemble your organizationâ€™s financial and legal team. Businesses may be eligible to receive financial relief in the form of BI claims or under existing government programs (i.e., Economic Injury and Disaster Loans) or future programs. Begin reviewing insurance policies and notifying and communicating with your organizationâ€™s insurance carrier(s). And begin documenting and quantifying your organizationâ€™s losses. REDW can help your organization document and support:
- Lost revenue
- Avoided costs
- Extra expenses, and
- Mitigation efforts
REDWâ€™s COVID-19 Task Force will continue to monitor and analyze developments to help your organization obtain the best possible outcome for recovering its BI losses.
Read Part II of this article, “COVID-19 + Business Interruption – Part II: Proposed Federal Insurance Legislation.”
Contact Brian Foltyn, an REDW Principal and Business Valuation Practice Leader, for questions or further discussion.
REDW is committed to keeping you informed at all times, but especially during a crisis of the magnitude of the COVID-19 pandemic.Â Stay connected with us onÂ LinkedInÂ andÂ @REDWLLC. Or check out some of our other updatesÂ here.