Due to the COVID-19 pandemic and the recent civil unrest, business owners throughout the country have recently suffered losses caused by various business disruptions and property damage issues, and, as such, many have turned to their insurance providers to seek relief under their existing business interruption insurance policies. Business owners and lenders alike, have been questioning whether such losses incurred may be recovered under business interruption insurance coverage and other similar coverages. While in some cases, seeking relief under business interruption insurance coverage may be a viable option for business owners, the coverage does not usually apply to all interruptions in business operations, and lenders are encouraged to have their commercial borrowers refer to their policies and follow-up with their insurance providers if they believe they may be entitled to benefits.

Business interruption insurance generally insures businesses for economic losses suffered as a result of a temporary closure and can help pay costs associated with lost revenue and various operating expenses. Depending on the exact language of the policy, business interruption insurance often covers lost income from a temporary closure, loan and lease payments during such a closure, and certain costs, such as payroll expenses, advertising costs, and taxes. However, it’s worth noting that in many instances, business interruption coverage only applies to situations where there has also been a covered physical loss, such as a fire, which is directly responsible for the interruption in normal business operations.

Many business owners may be particularly interested in seeking relief under provisions in their policies that discuss coverage for losses that result from forced closures by order of various governmental and civil authorities. While the exact coverage language can differ from policy to policy, in many (but not all) cases, this coverage is also generally limited to losses experienced as a result of a forced closure by government order that arises due to actual physical damage to an adjacent or nearby property. For example, if there has been fire or other damage to a nearby property, which has resulted in a government order that restricts the insured’s ability to physically access and operate its business, the insured’s existing policy may cover losses and expenses during the time that the business cannot be accessed. However, absent the triggering event of actual physical damage, many policies will not provide relief for losses stemming from government orders forcing a business closure.

It should also be noted that most business interruption insurance policies specifically exclude losses arising from viruses or epidemics, so absent evidence of physical damage, a successful claim under such a policy for losses suffered as a result of COVID-19 closures may prove difficult for many business owners. However, it is still prudent for business owners to review their policy language and compare it to the exact circumstances surrounding the temporary closure of their business.

If your lending institution has any questions about business interruption insurance, please reach out to Jellum Law, PA, Your SBA Legal Department.