Businesses across the United States have been forced to close down. Controversy over whether businesses can claim business interruption compensation from their insurance policies is growing.
Business owners say they have been paying business disruption coverage premiums for a long time. Insurers, on the other hand, are insisting that pandemics are excluded from insurance policies. However, the wording is not clear or specific in most insurance policies and may leave some loopholes that can be exploited.
For instance, in commercial real estate insurance, most businesses have civil authority or business interruption insurance as their main property insurance coverage. Normally, these insurance policies require property destruction to trigger compensation.
However, the insured can argue that a loss resulting from COVID-19 has occurred and the insurer should compensate the business for relocation costs, lost profits, taxes, payroll, etc.
Business interruption insurance coverage aims to replace business income lost in the event the operations are halted for some reasons, such as fire or natural disaster.
Normally, a business interruption policy is included in a comprehensive package policy as a rider or an add-on. It can also be added to a casualty/property policy but cannot be sold as a separate policy.
Business interruption policies cover the following:
Most state legislatures in the United States have introduced bills that will force insurance companies to compensate for business interruption, particularly to small companies. The insurance companies may, however, be able to claim the costs from public funds in the future,
However, any effort to compel insurers to payout will likely be met by resistance not only from the insurers—but also regulators.
There is no doubt that most of these disputes will end up in courts. Considering the loopholes in the policy wording and the amount of money at stake, litigation is likely to last for years and incur hefty legal costs.
At the moment, it is impossible to buy any insurance cover that offsets the COVID-19 pandemic costs. Insurers are making their terms tighter to make it clear that business interruption coverage excludes coverage for infectious diseases. In the future, insurers may come up with new systems that provide some level of coverage during pandemics.
For the moment, companies should review the terms of their business interruption policies to determine whether filing for compensation is sensible.