The COVID-19 pandemic is affecting businesses nationwide including companies in and around Washington DC. While some government assistance has been approved through the Small Business Association, most business are struggling to pay their overhead bills, keep employees on staff, and provide online and essential services.
Businesses, are looking for ways to stay afloat. One avenue that may be available, depending on the policy terms and state laws, is business interruption insurance. Generally, business interruption insurance is purchased to protect business losses due to physical damage, such as by a fire or a hurricane, for the following types of damages:
- Payment for overhead expenses such as mortgage payments, utilities, and insurance
- Salaries for the employees of the company
- Lost profits which are based on tax returns, profit and loss statements, and other financial relocations
- The costs to relocate so the business can continue while the buildings, equipment, and inventory that were damaged can be rebuilt or replaced
- The cost to bring the information technology back online and to restore databases, software, and other IT software and hardware
Another type of business interruption insurance is called civil authority insurance. Civil authority coverage applies when businesses are shut down due to government laws and regulations
Can businesses file for business interruption or civil authority insurance due to COVID-19?
Whether business interruption insurance covers damage due COVID-19 is an open question. States and local governments, such as the District of Columbia, could mandate that COVID-19 should be covered (Washington DC doesn’t have a mandate). Even with government approval, the coverage may only apply to future outbreaks and may be in violation of the Contracts Clause of the US Constitution.
Some insurance policies may expressly allow for damages due to viral infections. Some policies have “event” coverage which covers cancellations of events such as sporting events for any reason.
The National Review states that some lawsuits have begun based on civil authority coverage. The lawsuits claim the businesses were forced to close or cease non-essential operations by local governments – and they therefore should be eligible for their business losses due to the shutdown.
Other lawsuits claim that COVID-19 contamination is physical damage and should be covered by business interruption insurance.
One point of contention in business interruption and civil authority lawsuits is whether the insurance policy specifically excluded damage due to viruses. Plaintiffs argue that if an insurance company wanted to exclude pandemics it should have said so, in the insurance contract. Insurance policies either specifically include certain events, specifically exclude specific events, or the policies are silent about the events.