COVID-19 & Business Insurance: Coverage of Business Income Loss

As I mentioned in our May 2020 Blog, the COVID-19 pandemic has generated concerns about many types of agreements. This month I decided to focus on business interruption in commercial insurance policies, also known as business income loss coverage.

A bit of insight into the world of insurance may help you successfully pursue a claim to cover loss incurred due to COVID-19. Of course, much of the insight comes from reading the policy! But even if you read the policy, there likely will be terms used that are difficult or impossible to interpret. With the following I will focus on a few terms to aid interpretation.

Let’s start with the “Civil Authority” provision.  Generally speaking, under this type of coverage a business will be able to file a claim when loss of income is sustained because a civil authority has prohibited access to your business. So, who/what is a “civil authority?” Well, it could be the town or state or a government authority that issues an Order that causes your business to lose income, such as those we have seen across the country to protect public health because of the COVID-19 Pandemic.

The insurance companies may argue against coverage because COVID-19 did not cause physical damage to your property or property in the geographic area of your business premises (as defined in the policy). However, if the virus was present in your business or close by then you could argue you have coverage for your loss of income. Some civil authorities in their COVID-19 Orders added specific language that the Order was given because of the propensity of the virus (COVID-19) to physically cause property loss and damage. That kind of language is a big help for a business seeking to make a claim for business income loss. So not only should you read your policy, but also read the language of the order issued by local authorities that required you to close your doors or restricted your business from operating as normal.

The “Duty of Good Faith and Fair Dealing” is a statute in every state (except Louisiana) that governs contracts, including insurance policies. This statutory duty obligates parties to a contract to act with honesty in their dealings with each other. Oftentimes when an insurer refuses to pay a claim or will only pay a portion of a claim, the insured, or their legal counsel, will argue the insurer is not meeting its duty of good faith. Where an insurer avoids or unfairly delays paying a claim, causing further loss, or makes illogical demands regarding proof of loss, or other tactics to avoid paying a claim the insured may dispute the insurance company’s conduct by filing a “bad faith” claim lawsuit. Prior to filing a lawsuit, parties should try to resolve the dispute. A good start is for an insured to ask the insurance company to provide support of a reasonable basis for denying or delaying the claim.

Interpretation of your policy is affected by state statutes, state insurance regulations, and how prior insurance coverage cases litigated have been decided by a court.  If you have a claim to pursue or dispute with an insurer, seek help from a professional who is knowledgeable in the applicable state’s insurance law to help you interpret your policy so you may evaluate your legal options. With knowledge of the strength of your insurance claim, you can then make a decision based on an informed understanding and the security to move forward with an informed plan.