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Jason McLaurin

March 13, 2020

CORONAVIRUS BUSINESS INTERRUPTION INSURANCE

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IS YOUR COMPANY LOSING BUSINESS AS A RESULT OF COVID-19? BUSINESS INTERRUPTION INSURANCE MAY COVER THE DAMAGE

The rapid spread of the 2019 Novel Coronavirus, or COVID-19, has already exhibited an astonishing effect on our culture, our economy, and our day-to-day life. Businesses have closed, large events have been canceled, and many school districts have disbanded classes indefinitely. The implications of COVID-19 are numerous, and one that many business owners are grappling with is the disruption to their normal operation.

If there is any silver lining, it’s that your business may be covered against damages and loss. Specifically, business interruption insurance may give you a safeguard against some of the more dire effects of Coronavirus-related disruptions.

HOW COVID-19 CAN DISRUPT YOUR BUSINESS

There are two primary ways in which your business operations might be interrupted: First-party location interruption, or supply chain interruption.

FIRST-PARTY LOCATION

In some areas, the local authorities may shut down sites that are owned or operated by your company, as a way to prevent the virus from spreading. You may elect, of your own volition, to shut down your business for the near future, citing public safety concerns. You may also run into costs associated with cleaning, sterilizing, or decontaminating your place of business.

These interruptions may wind up lasting for days, weeks, or months. Some enterprises may have the internal flexibility to offset lost business or lost production, but many do not. Closing down your company for any length of time may result in significant economic plight. And even once you’re able to return to “business as usual,” you may face additional costs as you seek to get caught up with your production or transaction schedule.

SUPPLY CHAIN

Even if you don’t have a location that’s directly impacted, you may have customers or vendors who are. Supply chain interruptions may result in the loss of raw materials, or delays in your inventory being delivered to the point of sale. Supply chain disruptions can further inhibit your ability to maintain robust production, or to fulfill consumer demands.

HOW INSURANCE PLAYS A ROLE

Most of the time, property insurance is careful to exclude damage or loss as the result of a virus or pathogen. By all means review the specifics of your plan, but most business owners will likely find that their property insurance doesn’t cover them against events like COVID-19.

Business interruption coverage may be a better avenue for addressing loss. However, there may be some complications. Business interruption policies, which cover against unforeseeable disruptions to your normal operations, will typically require you to prove and quantify your claim. With something like COVID-19, that may be easier said than done.

Indeed, most business interruption coverage will only be triggered if you experience the physical loss of property; the fact that you’ve had to close your store, or that customers are ambivalent about coming to your place of business, is unlikely to meet this threshold.

However, business interruption policies will sometimes be triggered if preventative actions are taken to avoid property contamination or degradation (e.g., property loss). Additionally, your policy language might allow you to file a claim if there is the potential for contamination in your supply chain.

While there remains a lot of uncertainty about Coronavirus and the response of insurers, business owners who are looking at big losses should definitely spend some time reviewing their coverage. And if you have any questions about the kinds of claims you can make, reach out to the insurance attorneys at McLaurin Law in Houston.

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