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Does Business Interruption Insurance Cover COVID-19?

Frustrated owner sitting at table in closed cafe, small business lockdown due to coronavirus.

The novel coronavirus pandemic wreaked havoc on the national economy. Businesses were forced to close, some for months at a time, in locales across the country. Many such businesses have turned to their insurance policies for relief, but insurers have been quick to fight such widespread coverage. Businesses relying on business interruption insurance to seek relief for income losses suffered during the pandemic have faced an uphill battle. Read on to learn about business interruption insurance and how it has been applied to the COVID-19 pandemic, and call an Indianapolis business law and insurance coverage attorney with any questions.

What is Business Interruption Insurance?

As we recently explained, business interruption insurance is a subset of property insurance, offered as a supplemental addition. Business interruption insurance protects a business if a natural disaster or other event damages the property and forces the business to close for a period of time. While typical property/casualty insurance covers repair costs and other expenses, business interruption insurance covers income lost while the company is closed to the public and employees and may also cover other expenses such as rental space, payroll, and operating expenses.

COVID-19 and Business Interruption Insurance

The question of whether business interruption insurance covers closures due to COVID-19 is nuanced and complex. Insured businesses across the country have suffered millions in losses due to coronavirus-related closures, in many cases closing their doors as a result of government-mandated shutdown periods. Insurance companies, on the other hand, are on the defensive, looking to avoid large payouts to virtually all customer-facing business clients.

Insured parties claim that COVID-19 is like any other natural disaster: It’s a physical hazard that negatively affects their properties, forcing them to shut their doors and lose out on income for a while. Business interruption insurance covers mandatory closures by government agencies in light of physical hazards, such as when a neighboring building is liable to collapse, so it stands to reason that mandatory closures enforced by government agencies pertaining to the coronavirus pandemic should be covered as well.

Insurance companies, however, counter that business interruption insurance is explicitly meant to apply in the event of physical damage or loss to the property. A viral pandemic is not the same as a fire or flood; it does not actually damage the building or the infrastructure. Moreover, most policies now include a specific exclusion for viral contamination, added to policies in response to past pandemics. Policyholders, in turn, say that the government shutdown is the real cause of the business interruption, rather than the virus, even if viral contamination is excluded from coverage.

Lawsuits have erupted all over the country debating the issue. In many jurisdictions, the results have been overwhelmingly in favor of the insurers. Almost every state and federal decision out of New York, for example, has found in favor of the insurance company, ruling that business interruption insurance applies only in the event of “direct physical loss or damage” to the property, not simply that the property has been rendered unusable or uninhabitable.

While some courts in other jurisdictions have ruled in favor of policyholders, in Indiana, insurers seem to have the upper hand. In March, the U.S. District Court for the Southern District of Indiana ruled against the policyholder and dismissed the case, ruling that viruses and state-mandated closures do not overcome the lack of a “direct physical loss.” Moreover, the virus exclusion applied even if the actual closure was triggered by a government order; the virus was the cause of the government’s order. Indiana state courts have followed suit, likewise dismissing coronavirus-related claims even where the policy lacked the “virus” exclusion.

If you’ve been the victim of insurer bad faith in Indiana, or if you are an insured or insurer facing a dispute over proper insurance coverage, speak with a knowledgeable and detail-oriented Indianapolis insurance coverage lawyer at Lee Cossell & Crowley for a consultation on your case.

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