Business Interruption Insurance for Contractors and Restaurant Owners: Covering Your Losses During COVID-19

Business interruption or business loss insurance protects a business against loss of income resulting from a named peril. Typically, the loss of income must result from the business facility being closed due to a physical disaster, or during the process of rebuilding in response to the physical damage. Here’s some more information on this topic.

What Is Covered by Business Interruption Insurance?

This policy covers:

  • Profits (based on your prior performance)
  • Fixed costs
  • Cost of training and commission – You may need to replace equipment and retrain personnel after an interruption event.
  • Temporary location expenses – Some policies may cover the cost of moving and running your business from a temporary location.
  • Extra expenses – This includes reasonable expenses beyond your fixed costs that enable you to continue your operations.
  • Civil authority egress/ingress – An interruption event may lead to government-mandated closure of businesses. For instance, forced closure due to government-issued curfews.
  • Employee wages
  • Taxes – Even when a disaster hits, you’re obligated to pay taxes. Tax coverage ensures you pay your taxes to avoid penalties.
  • Loans payments – Your business interruption insurance can help you pay your loans even when you’re out of business due to a disaster.

What Is Not Covered

  • Items that are broken due to a covered loss or event, such as glass
  • Damage that’s covered by a different policy such as earthquake or flood damage
  • Utilities
  • Income that’s not documented in your financial records
  • Communicable diseases, viruses, or pandemics, such as COVID-19

Has Business Interruption Insurance Helped Restaurateurs During COVID-19?

About a third of businesses in the U.S. have business interruption insurance. While many of these businesses have been filing claims related to the mandatory closure orders due to COVID-19, many insurers are denying these claims. The argument is that after the outbreak of SARS-1, their policies no longer cover pandemics. It has also been contended that COVID-19 does not cause physical damage, and thus doesn’t warrant business interruption compensation. This position has triggered an outcry, disputing the legality and fairness of the denials.

Many in the business world, the legal system, and the insurance industry are now deliberating on whether COVID-19 had a physical impact that can justify compensation. The French Laundry, an award-winning restaurant in California, had brought a lawsuit against their insurer, seeking a declaration that the financial damage caused by COVID-19 is covered by business interruption insurance. Similar suits are ongoing in Boston and New Orleans, where businesses are suing their insurance companies seeking compensation for their losses. While the policies and actual claims vary, the goals of the suits are the same.

The main argument of the lawsuits is that the nature of COVID-19 is physical, and thus business interruption insurance should cover the losses. Another argument is that COVID-19 should be considered a pollutant and thus should be covered by pollution coverage. This question will be determined in the coming months and years, and the conclusions will vary from policy to policy and state to state.

Has Business Interruption Helped Construction Contractors During COVID-19?

Like in the restaurant industry, insurers have denied business interruption claims from businesses in the construction sector, because COVID-19 doesn’t cause “direct physical loss” like a hurricane or earthquake. A few states are deliberating on legislation that will force insurers to compensate for pandemic-related claims regardless of their policies’ exclusionary provisions. These states include New York, Ohio, California, Pennsylvania, and Massachusetts.

It’s worth noting, that the proposed law raises potential constitutional issues, as well as concerns with legislative meddling in private contracts. Additionally, the insurance industry is opposed to the legislation because if such compensation is enforced on a scale that was not envisioned in the policies, it would systematically harm the industry, according to the Insurance Information Institute (III).

Regardless of your industry, if you’ve experienced business losses due to COVID-19, you should submit your claim. If you need an insurance policy that caters to your precise needs, reach out to our experts at Modab Insurance Services today.

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