How to Make a Business Interruption Claim
The COVID-19/Coronavirus pandemic has shuttered businesses worldwide. Restaurants, fitness centers, bars, concert venues, hair salons, sporting venues, and retail shops are just a few of the businesses that have been affected. Learn the basics about business interruption insurance claims here.
What is a Business Interruption?A business interruption is an event that stops or otherwise modifies the normal operation of a businesses day to day operations. This can be caused by natural disaster, fire, or even a pandemic. A business does not have to be "closed" to be interrupted. For example, during the current pandemic, many businesses are still open and operating, however, they have modified their normal activity. A dine in restaurant may only serve through delivery or take out, for example. A fitness center may only offer virtual workouts instead of in person live programs. Business interruptions can be devastating to a businesses, even for a short period of time.
What is Business Interruption Insurance?Business interruption insurance is insurance coverage that replaces business income lost in the event of a catastrophe such as fires, natural disasters, and the COVID-19/Coronavirus outbreak. Business interruption insurance is not sold as its own policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider. Most business interruption insurance covers:
• Lost Profits
Based on prior performance, a business interruption insurance policy may provide reimbursement for lost profits that would have been earned had the catastrophe not happened.
• Expenses/Fixed Costs
These can include operating expenses such as rent and utilities, and other costs of doing business.
Your policy may cover the costs involved with moving to and operating from a temporary business location or changing business practices such as operating as a "take-out/to-go" facility only.
• Training Employees
In the wake of a business interruption event, a company will often need to shift business practices. For example, you may be a distillery but have switched to producing hand sanitizer. Business interruption insurance may cover these costs.
• Government Mandates
A business interruption may result in government-mandated closure of business resulting in complete loss of revenue. Examples include forced closures because of government-issued "social distancing" or "stay at home" orders.
• Employee Wages
Coverage of employee wages is essential if a business wants to resume operations as soon as the coast is clear. Making payroll while shut down is a benefit to not only the business, but to the employees as well.
Uncle Sam still requires businesses to pay taxes, even when disaster hits. Tax coverage will ensure a business can pay taxes on time and avoid penalties.
• Loan Payments
Loan payments are often due monthly. Business Interruption coverage can help a business make those payments even when they are not generating income.
Is My Business Covered?Whether or not this coverage applies will depend on your insurance policy language. With state and local governments such as New York and California mandating “stay at home" orders, many businesses are forced to close or severely modify their business practices. Some insurance policies may include “Civil Authority" insurance. This coverage usually applies where a “Covered Cause of Loss" causes losses other than to the insured’s property, resulting in lost business income because a "Civil Authority” such as a "stay at home" order prohibits access to the business. The standard policy language requires two additional conditions to be satisfied: (1) "[a]ccess to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area" but no more than a certain distance from the damaged property; and (2) "[t]he action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage ..." Again, every insurance policy is different which is why it's important to have your policy reviewed immediately.
The Coronavirus has left businesses in uncharted waters. It is often insurance that carries businesses through these waters and business owners expect the insurance premiums they pay for to come through for them in their time of need. Unfortunately, insurance companies often deny legitimate claims. It is important to immediately review your insurance policies, notify your insurance company of claims, and track all of your losses, regardless if you think there is coverage or not. Taking early action may ultimately be the difference between your businesses surviving, or shuttering for good.
How Do I Make a Business Interruption Claim?You do not have to wait until the pandemic is over to make a claim. You can - and you should - make a claim immediately with your insurance company. The first step is to contact your insurance company and ask for a copy of your FULL POLICY. Once you receive your policy, READ IT. If you do not understand it - and chances are you won't because insurance companies make it very hard to understand hoping you will just give up - have an attorney review it. Most attorneys will review it for free.
1. Contact your commercial insurance company
2. Request your full commercial policy including all riders and amendments
3. Review your commercial policy, or have an attorney review it for you
4. Draft a letter or email to your commercial insurance company notifying them of your claim
5. Submit all of your documentation of loss, including lease agreements, lease payments, previous years tax returns, and proof of closure or business modification.
Even if you do not think you have a business interruption policy, you should still make the claim with your insurance. Let the insurance tell you "no" or deny your claim. If your claim is denied, it is imperative you contact an attorney immediately to protect your rights. Insurance companies love to deny claims, especially legitimate claims, in order to save money.
Your insurance company will likely request a lot of information including your business tax filings, receipts, profit and loss reports, expenses ledgers, payroll rosters, and property leases. Provide your insurance company with as much information as you can regarding the losses you are claiming.
Every day that goes by is a day your business loses money and may never recover. That is why it is extremely important to make a claim with your insurance company immediately and have your insurance policies reviewed by an experienced attorney. This is the most financially challenging time a business may ever face. Most attorneys will not charge up front fees but only collect if they win your case.