Can Business Interruption Insurance Cover COVID-19 Closures?

Businesses throughout Connecticut have suffered as the COVID-19 pandemic continues to ravage public health and the economy. This has left companies scrambling to pay the bills, keep employees on their payroll and in many cases simply keep the lights on.

Understandably, many business owners want to know if they can rely on their business interruption insurance to cover losses associated with the coronavirus pandemic. Here are some frequently asked questions and general answers:

• What does business interruption insurance cover? — This form of insurance is designed to reimburse policy holders for lost income and continuing expenses resulting from business closures due to a disaster (such as a flood, fire, tornado or hurricane) that causes physical damage. This means the business cannot merely claim economic damage. The actual office, plant or other business premises must in some way be impacted.
• What does physical damage mean? — Despite the strict language most policies contain, there may be room to argue that physical damage includes contamination from dangerous substances that make the premises unsafe for people. This may allow coverage to apply in the cases of a “sick building” as long as there is no policy exclusion for such contamination.
• Does my policy exclude coverage for the effects of the coronavirus? — Business insurance policies vary and some contain exclusions for communicable diseases caused by bacteria or viruses. This is common in the restaurant industry, where foodborne illness is a risk. Such an exclusion would bar coverage even if there were physical damage to the premises.
• Can a mandatory shutdown trigger my business interruption insurance? — Typically, an executive order issued by a state governor or local authority requiring shutdown or curtailment of business operations is not covered unless some form of physical damage to the business premises or neighboring property is shown to have occurred. Insurance may be triggered when government measures are taken in response to riots or other civil disturbances.

The COVID-19 pandemic is an unprecedented event, so the law in this area is evolving. Recently, some policyholders have prevailed in cases in which their insurers denied business interruption coverage, and other litigation is in progress. If you are contemplating a claim for losses caused by business interruption during the pandemic, or if your claim has been denied, it’s important to consult with a knowledgeable Connecticut business lawyer who can analyze your policy terms and your potential recovery.

The lawyers at Gesmonde, Pietrosimone & Sgrignari, L.L.C. represent business owners throughout Connecticut. For more information, or to schedule an appointment, call us at 203-745-0942 or contact us online. We also offer consultations and appointments via, Skype, FaceTime and Zoom.