Much (Illinois): Insurance Coverage in the Time of Coronavirus: Business Interruption Coverage May Require Creativity

This article was originally published by Advisor News. You can view the article on the Advisor News website here.

Insurance is intended to cover unexpected losses. The novel Coronavirus is surely causing unexpected losses worldwide. As business is interrupted, many are asking: Are the resulting lost profits or other damages covered by business interruption insurance? As explained below, the answer depends on both the policy language, and perhaps creative thinking.

Most businesses carry Commercial Property Insurance, which often includes a separate Business Income Coverage Form. This form adds coverage, in certain instances, for lost business income, contingent business interruption losses, and losses due to certain action taken by civil authorities. Each of these are explained below.

Business Income/Interruption Coverage

First, the Business Income Coverage Form provides coverage for loss of Business Income sustained due to the necessary suspension of the insured’s operations during a “period of restoration.” The suspension of operations, however, must be caused by a “Covered Cause of Loss” that results in direct physical loss of or damage to the covered property. In other words, if a fire (which is a covered cause of loss) damages a factory, which shuts down production, the business interruption coverage should activate to pay for lost income until the damage can be repaired and production can be restored.

To obtain coverage resulting from the current Coronavirus crisis, the existence of the virus would need to constitute a Covered Cause of Loss, which results in physical loss of or damage to the covered property. This is unlike a fire, hurricane, or tornado, which are common causes of losses that cause visible damage to property. Now, across the world, businesses are closing due to the Coronavirus, even though there may be no apparent damage at all. But, particularly if the Coronavirus is found within the confines of a workplace or business, this arguably constitutes damage to the property, albeit at a microscopic level that cannot be seen.

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