Numerous companies are facing dramatic and unprecedented circumstances as a result of the COVID-19 pandemic. To stay afloat, businesses are being forced to reduce their staffing at varying levels, decrease employee hours and salaries, and unfortunately, in many instances, eliminate staff altogether. In fact, in many states, including New Jersey, businesses deemed “non-essential” have been shut down, inevitably resulting in loss of income to affected businesses. This has led to businesses exploring all avenues to recover losses, including business interruption insurance coverage under their commercial insurance policies.
What is Business Interruption Insurance?
Business interruption insurance, also referred to as business income insurance, is a type of insurance that assists in covering lost income due to the disruption of business operations. Common disruptions covered by business interruption coverage include events such as fire, hurricanes, broken water pipes, wind, lightning and earthquakes. Under certain circumstances, business interruption insurance may provide coverage for suspended operations of a business based on an order of or determination by a civil authority resulting in access to the insurance holder’s premises. Lost income is generally defined as the income a business would have realized through its normal operations but for the business being disrupted, including operating expenses and payroll.
Does Business Interruption Insurance Provide Coverage Due to Loss of Business Income Due to COVID-19?
Business Interruption Insurance coverage is based on the language contained in commercial insurance policies, which can vary from one policy to the next, as well as the law governing the interpretation of the applicable policy provisions. Those perils specifically enumerated in the policy for which coverage is afforded will provide the basis for any such determination. In order to determine whether business interruption coverage is available under the employer’s policy for COVID-19, particular attention should be paid to such issues as whether the business voluntarily imposed restrictions resulting in income loss, whether the business was closed due to local, state or federal order or whether the business was permitted to remain in operation on a limited basis subject to restrictions. The policy might also contain a virus exclusion provision, so it is important to review the policy for any such provision to determine how it might affect coverage determinations.
What Steps Should Employers Take to Determine Whether They Have Coverage for Business Interruption?
Since coverage will be guided by the company’s commercial insurance policy, it is essential to carefully review the policy, and it is highly recommended that the companies consult with legal counsel in order to determine whether filing a claim for business interruption is an option.
The information provided in this alert was up-to-date at the time of publication, is provided for general purposes only and does not constitute legal advice, and the transmission and receipt of this information does not create or constitute an attorney-client relationship.