Does Business Interruption Insurance Cover Claims Arising Out of COVID-19 Exposure?

Business interruption insurance covers a business’ losses resulting from a direct physical loss or damage to property. Accordingly, coverage under such a policy generally will not trigger unless there is a direct physical loss to the business’s property. In some circumstances, loss of income due to a disaster-related closing of a business’ physical location is covered.

As COVID-19 continues to spread throughout the country, many small businesses are turning to their brokers and carriers to inquire whether or not their business interruption insurance would apply to off-set losses during the impending economic slow-down.

Even though COVID-19 is disrupting global supply chains, making customers stay home, and compelling governments to order that businesses close their doors, in most cases losses due to those adverse effects will not be interpreted by insurance companies to be the result of physical damage.

All business owners are strongly encouraged to contact their insurance broker or insurance carrier regarding the scope of their organization’s applicable insurance coverage.

Business owners should also closely follow legislative developments that could impact whether or not their insurance applies. For example, the New Jersey state legislature has proposed a bill (N.J. bill A-3844) to retroactively create business interruption insurance coverage for COVID-19 related claims for any insured holding a business interruption policy in place from March 9, 2020 – the date on which New Jersey Governor Phil Murphy officially declared a state of emergency. If passed, this bill would create coverage for businesses even if their business interruption policies contained specific virus exclusions.

The proposed NJ bill will surely be opposed by the insurance industry on the basis that the state legislature would be overreaching its authority to modify legally enforceable contracts entered between two private parties. Nevertheless, it is a sign that New Jersey and other nearby states such as Pennsylvania will try and protect their small businesses’ insurance coverage through the legislative process. The extent to which that goal will be achieved remains to be seen.