The global pandemic has affected companies of all sizes. But it is small businesses that have been the hardest hit. In March 2020, quarantines and government-mandated lockdowns had a massive economic impact on employers and employees throughout the nation. One year later, the virus is still raging, and small businesses continue to suffer.
According to FEMA, approximately 40 percent of businesses never reopen the doors following a disaster. Millions have undergone extensive financial losses, and many will continue to suffer as the pandemic persists. Therefore, some business owners have turned to their insurance policies and claimed income loss due to the pandemic. Coverage depends on several factors that have yet to be determined.
Business Interruption Insurance
Business interruption insurance offers protection against financial loss when a company cannot operate due to certain types of exclusions. If physical damage to your property occurs, this policy will help cover the cost of routine expenses, lost revenue, and relocation. Essentially, this coverage keeps you afloat until you can reopen after a windstorm, fire, or other natural catastrophes.
The COVID-19 outbreak has raised questions about whether business interruption coverage includes pandemic-related losses. Unfortunately, for those affected, this has not been the case because a pandemic can impact everyone, all at the same time. Unless explicitly stated, a standard policy excludes contagious illnesses and pandemic-caused losses. That is especially true if you obtained business interruption insurance as part of a commercial property policy or bundled it with your business owner’s policy.
Even in the case of federal, state, or local government forcing your company to shut down temporarily, you will most likely not receive coverage. The critical points that trigger the policy are linked directly to physical damage on your property, not the threat or presence of the virus.
To receive maximum coverage for losses sustained due to the current crisis, a small business owner would need contingent business interruption coverage. For example, the loss of revenue would need to be caused by disruptions to the supply chain, the cost of repairing facilities and equipment, or the cost to clean and sanitize.
Communicable Disease Rider
Because business interruption insurance does not cover losses due to infectious outbreaks, you will need a communicable disease rider to expand the policy’s scope of coverage. It should include business interruptions, liability lawsuits, or property damage due to infectious disease. The rider may provide blanket coverage or specific coverage for pandemics.
Court Rulings and Legislation
The pandemic has caused copious amounts of uncertainty and confusion in the risk management and insurance field. Much remains unclear. But various court decisions have added more clarity on COVID-19 issues.
In situations where business interruption policies include ambiguous language, judicial intervention has been unavoidable. The rulings are mixed, with some judgments in favor of business owners and others siding with insurance carriers. Due to the considerable number of companies affected and making claims, state and federal lawmakers have discussed measures relating to business interruption insurance and losses caused by shutdowns. Definitive legislation has yet to materialize.
Business Interruption Insurance and COVID-19 Losses
Can business interruption insurance be purchased after a coronavirus-related loss occurs? Technically, no. This coverage will not apply to the current crisis but the next. It operates the same way as needing to buy collision insurance in the event of a possible car accident and not after one has already happened.
Pandemics are extraordinary catastrophes that can cause significant economic setbacks. Additionally, it has been a challenge to predict the uncertainty. Small business owners need to show sound management and effective decision-making to ensure the future of their companies. Therefore, action steps must be taken to help alleviate the impact of COVID-19 on your business.
Speak with an insurance agent about your current coverage.
Review your operations and develop alternatives to help you remain open and serve your customers while observing social distancing and other safety requirements.
Examine your budget to trim expenses.
Stay up to date on state and federal legislative efforts to aid businesses experiencing pandemic-related losses.
Document any losses you incur because of the pandemic, including those related to property damage, liability claims, or a drop in income.
Consider financing options to help you stay financially afloat until business rebounds.
DRS Insurance Group
Because COVID-19 is an unprecedented situation, it is not always clear what may be covered or not covered in your policy. DRS Insurance Group is here to help you navigate these trying and worrisome times. Give our agents a call or request a quote.
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DRS Insurance Group is an independent insurance agency located in Indialantic, Florida. Our team is here to help you with a quote, analyze your current coverage, and answer any questions you have.