As businesses are forced to close, either because of ill employees, or government mandated restrictions, there are going to be a lot of reduced revenues, lost profits, and canceled events. Isn’t that what you buy insurance for? Is any of this going to be covered by your CGL insurance policy? Well, maybe. Sorry for the lawyer-like response, but the answer to this question depends on the specific language of your policy and your specific circumstances. Several types of coverages and exclusions come into play and we will address the most obvious here.
Business Interruption
Business interruption insurance is designed to provide coverage for lost profits and overhead expenses when for reasons beyond the control of the business, normal operations have to be halted. For example, there is a fire in the restaurant’s kitchen and it has to close down while the kitchen gets rebuilt. The property damage coverage pays for the rebuilding work. The business interruption pays for the lost revenues and continuing overhead expenses while the kitchen is rebuilt.
In almost all situations, the policy requires a linkage between physical damage to the business premises before the business interruption coverage is available. But, what if the reason that you have to shut down is that the business is contaminated with corona virus? There are cases holding that if the contaminate is actually in the building, causing it to be unusable, there may be business interruption coverage available. If the virus is just floating around in the air, however, that may not be enough.
You also have look at possible coverage exclusions. Some policies do expressly exclude coverage for losses caused by viruses, bacteria, and disease.
Other policies might expressly provide such coverage. You just have to look.
Contingent Business Interruption
This coverage protects disruptions in the supply chain. If a supplier is shut down, and as a result, your business is directly impacted, contingent business interruption coverage may apply. But, most policies will still require that there be physical damage to the supplier’s business in order for the coverage to be available.
Civil Authority Coverage
Some policies provide coverage for business disruptions and closures caused by the actions of civil authorities. While the language providing this coverage varies widely, under certain circumstances, if a government orders limits or prohibits the insured’s access to and operation of their business, coverage may be available.
Unfortunately, some policies providing civil authority coverage require physical damage to property, but usually not the business owner’s property. Sometimes the policy requires physical damage in the general vicinity. But, if the virus is considered to be damaging someone else’s property because of its presence in the business, and the government requires an area wide shut-down, then an argument for coverage would seem to exist.
Event Cancellation Coverage
There are specific policies for events that provide some relief when an event has to be cancelled. As long as the policy was acquired before January of 2020, there is a reasonable possibility there will be coverage. However, as with all insurance policies, careful attention has to be paid to the exclusions.
If you have questions about the availability of coverage, please give Rick Mahrle a call at 602 256-4433.
