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An important issue concerning cases in which COVID-19 has affected your business is whether the presence of the virus, as well as the mandated business closures, constitute the “property damage and physical loss of use” that is required to activate business insurance coverage.
Business and property insurance policies generally include business interruption insurance, which is activated once a property is damaged or deemed unusable and the business suffers a loss of revenue. Damages are typically caused as a result of a natural disaster or a fire. Some policies may contain a civil authority clause that also covers income loss if a government denies access to the business – like if a fire at a neighboring business or property caused the area to be unsafe.
Businesses seeking coverage for interruptions caused by the COVID-19 pandemic need to review their insurance policies carefully.
Like business interruption coverage, civil authority coverage is also part of most policies for business closures mandated by governmental action. The scope of civil authority coverage is often limited to closures mandated due to physical damage or law enforcement activity within the area for a limited period of time. The big concern today is whether or not the closures caused by the attempt to mitigate the coronavirus pandemic are qualified for coverage under the business interruption coverage within most business insurance policies.
Business interruption coverage can help business owners who had to close or shut down within the same location or place that they would have used to conduct business. An insured business that suffers from such an interruption may be entitled to insurance benefits equal to the amount of income that was lost during the reasonable time needed to bring the business back into operation.
Commercial insurance policies typically allow for the business interruption coverage to only be made available when the business interruption is caused by a specifically covered loss, such as direct physical damage to the insured property. Some policies do include coverage for “Interruption by Communicable Disease”, but may still exclude contamination due to a pathogenic organism, virus, disease, or bacteria. However, such exclusionary language may not directly reference “viruses”, and this may assist with claims associated with physical property damage as related to the COVID-19 outbreak.
Affected business owners need to closely examine their policies, document all of their losses, and file a detailed claim.
Tips Regarding Business Interruption Insurance:
- Make sure to have a current copy of your business insurance policy and the declaration page. Your Attorney can help you to carefully examine the policy for potential coverage, as commercial property insurance policies often contain business interruption insurance as part of the coverage. The verbiage of the policy is important because this type of insurance is normally enacted once a direct physical loss of, or damage to, an insured’s property occurs. Industries such as hospitality, travel services, and healthcare providers could include certain coverage for diseases.
- Check for any specified deadlines in your coverage, as well as any limitations, exclusions, and covered causes of loss. Report claims as soon as you can because the time limits begin on the date of the damages that occurred. The period of time allowed in the policy may be 60 days to 180 days. Contact your insurance broker or provider, and take notes and put details in writing in an email to them as well.
- Keep detailed notes to document how your business was affected by the damage and the losses incurred. Record each loss of sales revenue, payroll costs, rent, loss of spoiled or damaged inventory, accounting fees, and any other damages and costs.
- Maintain evidence of how your business has tried to mitigate losses. Working towards decreasing loss may include staying in operation with limited staff or continuing to offer more simplified services. Try to limit the period of restoration, which means estimating the period of restoration which begins at the time and date of loss and ends when business income levels begin to normalize.
- Aim for constant communication with your insurance broker, provider, and/or insurance adjuster. Include details of progress, activity timelines, and any extra expenses incurred over the time period.
- Prepare all of your documentation and have it ready for review. Accounting records, documentation of losses of business income, sales forecasts, receipts, open invoices, third-party contracts, financial statements, and tax returns can all help to verify the damages and loss of business income.
We encourage everyone to work together and help one another to get through the pandemic. Fortunately, there are several resources and relief programs that small businesses can turn to including: emergency funding from the government, business loan deferment, and protection from eviction. Banks are encouraged by the FDIC to work with their customers to provide assistance related to the COVID-19 difficulties for both personal and business finances.
The Floyd Law Firm PC is your resource for Business & Corporate Law serving Surfside Beach, Myrtle Beach, and throughout South Carolina. We are committed to helping business owners with professionalism and advocacy. If you need our help reviewing and filing your business insurance claim, please do not hesitate to Contact Us.