Have you lost revenue due to unforeseen circumstances that are out of your control? If so, you may have a valid business interruption claim. As a business owner, you likely have a multitude of questions regarding how such a claim works. How is business interruption insurance different from your property insurance? What counts as a business interruption in the first place? And, does the current COVID-19 pandemic qualify as such an interruption? In this article, we will be answering all of those questions.
What is Business Interruption Insurance?
Business interruption insurance is meant to compensate businesses for lost income and other associated expenses resulting from disasters. Lost income can include lost revenue due to the business requiring to be temporarily closed, or the destruction or loss of merchandise. Additionally, there are other expenses that may be covered, such as those associated with temporary relocation or operating costs while your business is closed.
Generally, business interruption insurance is purchased as an addition to a property insurance policy rather than as a standalone policy. This makes more sense when you look at it using an example. If your business had a damaging fire which caused you to temporarily close due to renovations, there would be two parts to your claim. The first part would fall under your general property insurance policy and would cover the costs of the repairs. The second part would fall under your business interruption policy and would cover the loss in revenue associated with being closed during renovations and the goods which were damaged.
What Counts as a Business Interruption?
So how do you know if a disaster event counts as a business interruption covered by your policy? There are two main requirements which must be met. First, the disaster which caused your losses cannot be an excluded event per your policy. Second, there must be a direct physical loss or damage to your business property due to that event.
When it comes to events considered disasters covered by your policy, there will likely be two main categories: natural and man-made disasters. Natural disasters include things like floods, natural fires, hurricanes, etc. Man-made disasters may include things like long-term power outages, accidental fires, and other such events with a human origin. However, there are also going to be some exclusions listed within your policy — things which aren’t covered even if they fall into one of these two categories. For example, there will likely be an exclusion of any disaster which is intentionally caused. So while an accidental fire may be covered, arson may not, even if your business was a random victim.
Connecting direct physical losses to the event can sometimes be tricky because there are often many indirect losses associated with disasters. For example, if there is a bad snowstorm preventing your customers from leaving their houses and making purchases at your business, that’s an indirect loss which would not be covered. But if that snowstorm knocked out your power and that power outage directly caused your inventory to be damaged or lost, that could be a direct loss.
Is COVID-19 a Business Interruption?
Disease is an interesting type of business interruption because while it may be considered a natural disaster, and probably isn’t explicitly excluded from policies, it still may not qualify. The best way to think about disease as a business interruption is by comparing it to a snowstorm. As we have already established, the simple fact that a snowstorm is preventing customers from going to your business is not enough for your policy to take effect. Disease is the same way. Just because your customers stay at home to protect themselves from the disease does not mean that your business suffered a direct loss.
When it comes to COVID-19, this is still largely the case. Even if a stay at home order is issued, and that is why your customers stopped coming to your business, that may not be enough for your policy to kick in. However, there are a few situations that probably would be covered, and Pennsylvanians may be able to take advantage of these to recoup their losses. If your business was forced to close due to the pandemic, you could argue that it falls within your business interruption policy. This could either be your business needing to temporarily close for decontamination, or your business being forcibly closed after being deemed non-essential.
In both of those cases, the pandemic — a relatively unforeseen natural disaster — caused direct loss to your business because you were forced to close temporarily, which resulted in a cessation of sales.
Business interruption insurance is meant to compensate businesses for the loss of income associated with direct physical damage to business property due to a disaster event. Events that are generally considered business interruptions are natural disasters and accidental man-made disasters, but each policy will also have a specific set of events that are excluded. It is important to know which types of events are covered under your particular policy. Finally, for many business owners in Pennsylvania, COVID-19 may be considered a viable business interruption for a claim. This will depend on how exactly the pandemic has affected your day-to-day operations.
Donaghue & Labrum Trial Lawyers
If your business has suffered financial losses due to pandemic closures, a business interruption claim is one way in which you may be able to receive compensation. Here at Donaghue & Labrum, LLP, our attorneys have a long history of representing both consumers and business owners when they need an advocate in their corner. Contact us today for a free consultation regarding the specifics of your claim.