During this uncertain time, many small businesses are considered non-essential and are closed due to their state’s stay-at-home order. And, of course, many of these businesses are seeking relief – of any sort. One obvious place to turn to is the business’s insurance policy. Does business interruption coverage include a mandated closure due to a pandemic? Unfortunately for small business owners, the answer is often no.

Stories abound of business owners making insurance claims that are summarily rejected. For example, I note a recent article in the Hartford Courant, “Owners of small business in Connecticut are learning the hard way that their insurance doesn’t cover coronavirus losses” by Stephen Singer. Singer states:

Insurers began adding an exclusion in 2006, a few years after the SARS outbreak, barring business interruption clauses from covering viruses and bacteria. A circular distributed among insurers at the time cited SARS, influenza, legionella and anthrax. The industry says the scale of the coronavirus pandemic is too great to bear and business interruption insurance is intended to compensate for lost income, rent, wages and other expenses following more limited setbacks such as fires or natural disasters.

Although this position provides little solace to suffering business owners, the denial of coverage may make sense, particularly in light of the language of the particular policy. The article quotes David Sampson, Chief Executive Officer of the American Property Casualty Insurance Association, as explaining, “Pandemic outbreaks are uninsured because they are fundamentally uninsurable. A pandemic by its very nature means that you can’t diversify risk, which is the fundamental basis of how insurance operates. It’s global in nature and it’s hitting everyone at the same time.”

Nonetheless, numerous lawsuits contesting denials of coverage are in the pipeline, and some states “are considering legislation requiring insurers to continue business interruption coverage during a declared state emergency due to the coronavirus.” In Washington, the Office of the Insurance Commissioner has provided information to businesses. In particular, the Insurance Commissioner’s website notes:

There is a clause in most business policies called “Civil Authority,” which addresses the situation when government prohibits access to your business. If your policy requires a “covered cause of loss” to be the reason why the civil authority restricted access to your business, your insurance company would need to determine if the coronavirus outbreak is a covered cause of loss. Some business policies do not have this requirement. Please read your policy carefully.

If you are suffering business losses, you should definitely review your policy extremely carefully and consider contacting your attorney if you seek to file an insurance claim.

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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