The response to the coronavirus in Florida by Governor Ron DeSantis has been confusing at times. The Governor proclaimed that he would not shut down the state. Then he changed his mind.
Following partial shutdowns, the Governor allowed businesses to reopen quickly without restrictions. As the coronavirus surges in Florida, some businesses are shut down again.
The constant interruption to business has caused many companies to sustain significant losses. Additionally, consumers are spending less because of the high unemployment rate.
Insurance is a safety net. When something terrible happens, the insurance company compensates the policyholder for losses. The compensation helps the policyholder recover from the financial hardship caused by the peril or event.
Unfortunately, many insurance companies are denying COVID-19 business interruption claims. For many companies, the money from a business interruption claim is crucial to remain open. Without this money, a business could close permanently.
What is Business Interruption Insurance Coverage?
Business interruption insurance is optional insurance coverage a company may buy. The company can add the coverage to a commercial insurance policy. The insurance pays for lost business revenue caused by a covered event.
Covered events depend on the terms of the policy. However, perils and events that are generally covered by business interruption insurance include:
- Falling objects
- Loss of utilities
A company may also purchase civil authority insurance coverage and extra expense coverage. Civil authority coverage applies when a government entity forces a shutdown of the business. It can also apply when a government entity restricts business activity.
Extra expense coverage pays for certain expenses the company might incur as it tries to minimize the losses from an interruption to business activities.
Calculating the Value of a COVID-19 Business Interruption Claim
Examples of losses and expenses covered by business interruption insurance include:
- Loss of profits and revenue
- The costs of relocating the business temporarily
- Employee compensation
- Taxes, mortgage payments, rent, loan payments, insurance, and other fixed expenses
- The cost of retraining employees to use new equipment or function in a new location
In most cases, the value of a business interruption claim is the total of the company’s fixed expenses, added expenses, and net income. Proving how much your company lost because of COVID-19 can be a complicated process. The insurance company demands proof of your losses and how you calculated the losses.
Be prepared to provide detailed documentation to your insurance provider including, but not limited to:
- Monthly profit and loss statements
- State and federal tax returns
- Bank and financial records
- Loan, mortgage, utility, and credit card statements
- Payroll records
- Sales receipts and invoices
- Purchase orders
- Budgets and projections
You might have a battle on your hands when you file a COVID-19 business interruption claim.
You paid your premiums faithfully. You had the forethought to purchase insurance coverage. Regardless, your insurance provider may deny your claim.
Insurance Companies Denying Claims for COVID-19 Insurance Claims
Most business interruption insurance policies have numerous exclusions and exceptions.
A standard exclusion in business interruption policies is an exception for infectious diseases. Insurance companies added these exclusions after other infectious diseases resulted in expensive claims in the past.
Some companies tried to avoid the infectious disease exclusion by filing under the civil authority provision of their policy. Insurance companies allege that without physical damage or loss, civil authority policies do not cover the loss.
Unfortunately, the courts have agreed with insurance providers. Judges ruled that insurance policies exclude business losses caused by infectious diseases. They also agree with the insurance companies about civil authority claims.
The judges ruled there must be physical damage to the business premises. In one case, a judge commented that COVID-19 hurts lungs, not printing presses. Another judge commented that the virus hurts people, not property.
Companies are encouraged to talk with an experienced COVID-19 insurance attorney as soon as possible. After a careful review of the business interruption insurance policy, the attorney explains the company’s options. A lawyer can help a company prepare and file a COVID-19 insurance claim and prepare for a lawsuit, if necessary.
Lawmakers Work to Secure Business Interruption Coverage
Many state and federal lawmakers are working on bills related to business interruption insurance. Some bills require insurance companies to pay business interruption claims based on COVID-19 losses. Some bills propose that the federal government fund the COVID-19 claims paid by insurance providers.
More COVID-19 lawsuits will head to court. Lawmakers will continue to pressure insurance companies to pay and settle claims. The status of COVID-19 business loss claims may change.
For this reason, it is in a company’s best interest to consult with an insurance lawyer as soon as possible.