Business Interruption Insurance Coverage and COVID-19

 Posted on April 28, 2020 in Small Business Taxes

The COVID-19 virus has impacted every facet of our lives. Schools across the country have been canceled and replaced by online classes, employees have been laid off from their jobs, and business owners have lost valuable income. From restaurants to doctor’s offices, business owners are suffering. If you are a small business owner, you may be extremely concerned about the effect “shelter-in-place” directives are having on your business. You may even wonder whether or not your business will survive. One option that may be beneficial is business interruption insurance.

What Is Business Interruption Insurance?

Business interruption insurance covers business losses caused by a disaster. It is an optional form of coverage that may be included in a business owners’ policy or a comprehensive multi-peril commercial policy, or it can be issued on a standalone basis. This insurance is intended to protect against losses resulting from disruptions to normal business operations. In addition to replacing lost income, business interruption insurance may also cover:

• Estimated profits based on previous months’ profits
• Fixed costs such as operating expenses
• Employee wages and worker training costs  
• Civil authority ingress/egress
• Taxes
• Loan payments
• Other reasonable expenses

Will Business Interruption Coverage Cover Losses Due to COVID-19?

There has been a great deal of uncertainty and confusion regarding business insurance coverage and shutdowns caused by COVID-19. Recently, the Pennsylvania Supreme Court made a ruling in the case of Friends of Danny DeVito v. Wolf that may influence business interruption insurance claims. The plaintiff in this case was asking for the shutdown order to be set aside on the grounds that the mandated shutdown was an overreach. In the end, the Pennsylvania Supreme Court ruled that the order should not be canceled, because the coronavirus is “a natural disaster and a catastrophe of massive proportion.” If other states, including California, agree with the Pennsylvania Court’s classification of the coronavirus pandemic as a natural disaster, insurers would likely be required to pay business interruption claims based on COVID-19.

After this ruling was issued, California Insurance Commissioner Ricardo Lara asserted that insurance companies and other parties licensed by the Insurance Commissioner must investigate any coronavirus-related claims within 15 days of receiving the claim. If a claim is denied, the insurance company is required to provide the factual and legal basis for the denial. At this time, it is not known for sure whether or not business owners will be receiving compensation for losses caused by the coronavirus through business interruption claims.

Contact a San Jose, California Small Business Lawyer

If you want to learn more about business interruption insurance coverage in general, review of your policy in specific, or if you would like assistance filing a claim, contact John D. Teter Law Offices. San Jose business law attorney John D. Teter has more than 30 years of experience handling a wide range of tax and business concerns. To schedule a consultation to discuss your needs, call our office at 408-866-1810 today.

Sources:

http://www.pacourts.us/assets/files/page-1305/file-8783.pdf

https://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opinion/upload/Business-Interruption-Claims-Notice.pdf