In the face of the world-wide pandemic that has forced many restaurants and small businesses to close, business owners are wondering where to turn to find financial help to weather the storm. One possible answer may be insurance policies that cover “business interruption” losses resulting from COVID-19 closures.
Many companies have business interruption insurance, either as a component of their general liability insurance policies or as a separate policy. Business interruption insurance is designed to cover the loss of income that a business suffers after a disaster.
For example, business interruption coverage may be available when a business establishment is destroyed or damaged by fire. In this scenario, if a manufacturing or distribution facility burns down, a business faces two financial burdens: 1) rebuilding the physical structure and 2) covering the financial losses incurred while the business is effectively “out of operation”.
Many small business and restaurant owners may assume that their insurance will not cover financial losses associated with COVID-19 closures because the closures are not caused by “physical damage.” However, insurance policies vary greatly, and the specific wording of a policy will control how it is implemented. Moreover, if the language of the policy is ambiguous, it may be construed in the business owner’s favor. While a global pandemic is uncharted legal territory, business interruption insurance may provide coverage if your business is effectively “interrupted” by government orders, supply chain disruption or other catastrophic events that substantially disrupt normal business operations.
Here are three important steps to take for a small business owner navigating this situation:
1) Obtain and Carefully Read Your Insurance Policy
First and foremost, obtain your entire insurance policy. There will likely be a standard form that is issued to each insured along with “riders,” which are specific to your business that add or eliminate provisions contained in the standard form. Be sure to carefully read the policy and all riders. If you have questions about the meaning of any of the provisions, check with competent legal counsel. Do not assume that no coverage exists simply because your agent or broker tells you so.
2) Notify Your Insurance Company or Agent Immediately
It is crucial that you notify your insurance agent that you have been required to close your business. All policies require you to give prompt notice to the insurance company of claim. Don’t rely on a telephone call. Send a letter or e-mail so that you can prove that you gave timely notice.
3) Keep a Record of the Effects of the Closure
Write down everything. Make sure that you are keeping track of the numbers that reflect how the COVID-19 closure is impacting your bottom line.
Additionally, you must make efforts to reduce the damages (i.e. losses) caused by the closure. For example, if you operate a restaurant and cannot have patrons dine-in, you can probably still offer delivery and curbside to-go options. Make sure to carefully document these activities so you can show that you are trying to reduce any losses to the business.
Ray Quinney & Nebeker Resources:
If you have questions about this process or other challenges raised by the COVID-19 pandemic, Ray Quinney & Nebeker has developed a team of attorneys to assist you. For more information on resources, please contact Kristine Larsen or Brent Wride.
Brent D. Wride has assisted numerous insurance companies and policyholders with their insurance-law needs, including litigation, regulatory matters, and insolvency. He has taught insurance law courses at the law schools of the University of Utah and Brigham Young University.
Kristy M. Larsen practices in the Firm’s litigation section with a focus on personal injury and commercial litigation. She has extensive experience representing Fortune 500 and other corporate clients in disputes involving products liability, personal injury, insurance coverage, all areas of transportation law, medical malpractice and commercial real estate matters.