Peter Spoleti / Vertex Markets Inc.

Business Interruption Insurance During COVID-19

Business Losses From COVID-19.  Will They be Covered by Insurers?

As the shutdown restrictions continue to be lifted, businesses are tiptoeing through the mind field of re-opening regulations.  Their depleted bank accounts are affecting all their business decisions as they fight for the survival of their life’s work. 

A thought going through many of their minds is, will my business interruption insurance cover any of my lost income, and if not, why not!

The COVID-19 pandemic brought many small and medium business owners to a financial crisis.  Extended forced shutdowns have devastated their revenue.  As they start to re-open, local government regulations are compelling them to incur additional expenses.  Businesses are installing shields, abiding by social distancing, implementing enhanced safety & sanitary measures, and upgrading air filtration systems to protect their employees and customers.  Even after all these requirements are met, many business owners are forced to operate well below full capacity.  Resulting in extended financial pressure on their depleted cash reserves.

When business owners look to their insurance companies for the financial assistance, they believe they are due.  Many are learning their policies aren’t covering their losses, even if their policies included business interruption coverage. Where did all these business owners go wrong with their insurance coverage? Should they be expect payouts from their insurance carriers?

I am sorry to say, the remedy is problematic.  Newly filed lawsuits filed by business owners will take time to work their way through the court system, with their outcomes uncertain.  State and federal legislators have seized the side of the small business owner.  They’ve presented a front against the insurers, researching ways to force them to provide payouts to business owners.  Though their efforts have yet to provide any results.

In the face of this current uncertainty, it is a safe call for business owners to file pandemic related claims, in the hope that their insurers will offer some form of relief.  At any rate by filing, business owners will have their claims on record if sometime in the future either the legislation or lawsuits are successful.

COVID-19 Forced shutdowns hit small businesses hard.

Small and Medium business owners have been dealt quit a blow due to the shutdown. According to  The U.S. Chamber of commerce Small Business Coronavirus Impact Poll  from this June, 82% of small business owners were concerned and 43% very concerned, about the impact the pandemic will have on their business.

That same poll reports only 56% feel comfortable with their company’s cashflow.  With 55% of small business owners in that poll thinking it will take six (6) months to a year before the U.S. business climate returns to normal, up from May.

More than 80% of small businesses report that they are making or planning to make adaptations in response to the coronavirus, increasing overhead cost.

 So Why aren’t insurance company’s making pay outs?

Insurance policies, even those with business interruption coverage, usually don’t cover losses associated with pandemics.  Insurers argue they will suffer substantial financial losses due to the large cost of the pandemic coverage.

The bases of the insurer’s argument relate to the issue of physical losses.  They state, business interruption policies only provide coverage when a business suffers an income loss as the result of actual physical damage, i.e. a fire or flood and the business must shut down to make repairs.

Since physical loss weren’t the results of the COVID-19 business shutdowns, insurers argue the losses incurred aren’t covered by the business interruption policy.  Also, business interruption insurance usually doesn’t cover diminished income suffered from a business who must scale back their operations, either.  An example would be a restaurants reduced sale because of only being allowed to offer curbside pickup or delivery.

As stated in the NAIC Statement on Congressional Action Relating to COVID-19, insurers argue, “Business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19 and therefore include exclusions for that risk”.  They believe, to keep policies affordable and the insurance sector solvent.  They believe, “swift action by Congress to directly address the needs of citizens and our economy is the most effective and expedient means to addressing the devastating impact of COVID-19”.

With the insurance companies punting this issue to the taxpayers for what they believe is the “greater good”, is there any hope for small and medium business owners?

There may be some hope down the road for business owners, but they shouldn’t expect to see any insurance relief any time soon.

Is there a movement afoot?  

While all states are slowly reopening, many small and medium businesses are still facing head winds on many fronts, regulatory, psychological, & financial. Restaurants and many retailers are forced by state & local regulations, to operate at a reduced capacity.  They’re forced to employ new safety, sanitary & cleaning practices to protect their customers and employees.  Adding additional expenditures at a time of reduced revenue, adding more of a burden.

As these mounting regulatory challenges and increased cost are chipping away the bottom line of many businesses there is an outcry from owners throughout the country to necessitate insurance companies to make payouts to business that were forced to close during the pandemic.  Many state legislatures have introduced bills requiring insurance companies to provide payments to small business.

One of the more encouraging developments on the legislation front comes from a New York legislator introducing federal legislation, Pandemic Risk Insurance Act of 2020, which creates government funds to be used to cover some of the losses insurance companies may incur by making pandemic business interruption insurance coverage.

With these bill’s still in their earliest stages,  businesses shouldn’t count on any payouts in the near future. The chances of any of these legislations passing anytime soon, especially during an election year, are probably slim to none.  Not to mention the legal challenges which will be launched by the insurance companies if these bills are enacted.

What business owners must do.

Even though the legislation efforts aren’t a confident solution to this issue, if businesses had business interruption coverage, owners should still file a claim to have them on record in case there is a legislative solution in the future.

If your business was affected, either shut down or dramatically forced to limit your services, talk with your insurance broker, review your insurance policy carefully examine what is and isn’t covered.  Learn about the policies exclusions, especially those related to the current pandemic, find out where you’re exposed.  A report from insurance quotes provides some insight on how the insurance companies learned from the SARS epidemic 18 years ago where may be the reason business are finding themselves not covered for the current pandemic’s shutdown losses.  It also reviews the state of insurance in the age of the COVID pandemic and addresses best practices for business owners to review their policies and how they may be able to receive compensation.

It’s important for business owners to build a case for their payout.  They’ll need to provide documentation for their insurer on exactly how much money they lost. Include any receipts, profit & loss statements, and any supporting documents to substantiate their financial losses.

Make sure to include the funds required to reopen your business.  Include any cost for enhanced cleaning procedures, more robust air-purification system and installation or construction required by local regulations.  After you re-opened, is it at a reduced capacity, which limited your income potential?  Create sales comparisons from past years to document the reduction in sales and any other losses you’re incurring for your claim.

Now that you’ve collected all your documentation and your proof of lose, it’s important to file your claim, even if you don’t believe your insurer will pay out. If the federal government or state legislatures get a bill passed, it is essential you’ve filed your claim on time to take advantage of whatever protection governments might provide.

Do Businesses Still have a chance?

Keep in mind the insurance situation is not fully settled at this time.  Even though the insurance industry is currently refusing payouts on claims related to the pandemic.  Insurers many not have the final word on this matter.  Financial payouts from the insurers may eventually happen as the lawsuits filed work their way through the courts.

No one know if these lawsuits will result with insurers having to make financial payouts to business owners.  But they are expressing a dissatisfaction with the insurance industry from the business community.  Which may result in insurers re-thinking their stances on pandemics and outbreaks in the future.

Small & medium business owners have been dealt a raw deal over the last few months.  Forced shutdowns, devastated many of them financially, increased regulations cost incurred to re-open their doors, then learning their insurance coverage wasn’t what they thought it was. We can only hope, either these lawsuits or legislation help to lessen some of the blow soon.

What are business owners going to do until the lawsuits or legislation is settled?  They’re going to do the same things they have always done.  There going to do what it takes to make their business a success and bring it back from the depths of despair imposed upon them these last few months. Through no fault of their own.  Because they have no choice, and that’s what they have to do to succeed!

Learn more about how to increase your sales and marketing as you’re reopening


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