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Business Interruption Insurance Q&A

What is Business Interruption Insurance?
Business Interruption Insurance, including supply-chain coverage (“BII”), is insurance coverage that replaces income lost in the event that business is halted or interrupted for some reason, such as a fire or natural disaster.  Some policies also provide coverage if government actions cause operations to cease temporarily, which results in a loss for a business. BII may be purchased as a stand-alone policy, added to a commercial property/casualty policy, or included in a comprehensive package policy.  BII policies generally only pay you an amount equal to your actual losses up to policy limits and only pay if the underlying peril is specifically included (and not excluded) in the language of the policy.  The amount payable is generally based on the past financial records of the business.

Will my Business Interruption Insurance cover losses related to the COVID-19 pandemic?
Business owners who have purchased BII should carefully review their policies to determine if coverage for COVID-19 related business interruption losses is available.  Most BII policies require “direct physical loss of or damage” to the insured’s property resulting in business interruption. Some policies also provide coverage when a governmental authority restricts or prohibits the business from continuing operations.  When coverage is provided, such governmental authority actions may or may not need to result in physical property damage. Policies, such as those insuring the hospitality and healthcare industries, occasionally contain an endorsement or enhancement providing coverage for communicable or infectious diseases, but generally such coverage is not provided in the basic BII language. If you are not sure whether your policy provides coverage for COVID-19 related interruption losses, you are encouraged to consult your insurance and legal advisers, as such coverage, exclusions and limitations are nuanced.

Why don’t most Business Interruption Insurance policies cover losses related to the COVID-19 pandemic?
Insurers have found it difficult to underwrite coverage for events such as the COVID-19 pandemic in a cost-effective way that would be affordable to most policy-holders.  As such, insurers may offer a costly endorsement or add-on to basic BII coverage.

What other resources are available?
All hope may not be lost!  The federal and some state governments are taking measures to protect businesses and workers in these difficult times.  The Small Business Administration has declared a disaster in all 50 states, the District of Columbia, and many territories, allowing small businesses to apply for Economic Injury Disaster Loans, and more assistance is promised.  We will continue to monitor the fast-changing legislation and government responses and provide additional information as we are able.

For questions, please contact Chad Walker or your Bose McKinney & Evans attorney.