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Interpreting business interruption insurance policies for small businesses

submitted by J. Randy Sawyer, Esq., Stark & Stark, jsawyer@stark-stark.com

The economic situation for small businesses in America is dire. Following the widespread social distancing and stay-at-home orders, approximately 7.5 million small businesses are now at risk of closing their doors permanently within the next several months if the coronavirus pandemic restrictions continue.

Many business owners have filed insurance claims under their business interruption coverage.

Insurance carriers have responded by consistently denying those claims.  Many are taking the position that the business interruption coverage in their policy is not triggered just because the government ordered the closure of businesses due to the coronavirus.

A number of businesses across the country have been challenging the insurance carriers’ position by taking their fight to court.

Business interruption (BI) insurance is typically held by business owners as part of their commercial property insurance.

It is intended to protect against economic losses that occur when insureds cannot run their business due to a “physical loss or damage.” The insurance typically covers lost revenue, business carrying costs such as mortgage or lease payments, payroll, and taxes, as well as other expenses that would not be incurred had it not been for the shutdown of the insured’s business.

So, is BI insurance “triggered” by the events surrounding the coronavirus pandemic?

What constitutes “physical loss or damage?”

Does the presence of the coronavirus, and its ability to be spread by surface contact, the kind of “physical loss or damage” that triggers BI insurance coverage, since it in turn caused the state government orders to close businesses due to the COVID-19 pandemic?

This fight over what constitutes “physical loss or damage” will be central to whether BI insurance will be available for losses resulting from this pandemic.

Small business owners around the country are going to court after insurance carriers denied their claims, and business owners are being encouraged to thoroughly review their policy language in order to have a clear picture of what is and what is not covered.

Keeping your business moving forward is a major stressor for all business owners these days.

If you are a small business owner with questions about how your business interruption insurance policy should be interpreted, learn more about our business interruption practice.

An experienced attorney can help you understand your options. 

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