Can Business Interruption Insurance Help Companies Combat the COVID Crisis?

Recently we have been receiving a lot of emails with questions pertaining to business interruption insurance and if a tenant can use the insurance to pay their rent and/or employees due to COVID. I read a piece called “4 Key Coronavirus Insurance Coverage Battlegrounds” by Jeff Sistrunk – Law 360 and I thought I would give a summary about one of the four key coronavirus insurance coverages - business interruption insurance.

Business interruption insurance is also known as business income insurance is defined as a type of insurance that protects a company’s decline in its net income due to a disaster.

A disaster is when a tenant is forced to close their office for a reason beyond their control. The COVID crisis has resulted in companies having to close their offices/facilities and try to perform all work duties at home. In order to use business interruption insurance, the company must be able to show that there is a “direct physical loss” to the property. For example, during the COVID crisis, there has been no damage to properties, only fears of coronavirus, which does not correlate as a “direct physical loss.”

However, if an employee working inside the property tests positive for coronavirus, this might be considered a “direct physical loss” because the employee could have contaminated the property, which would prevent employees to work at the property.

Some commercial property policies that have business interruption insurance have dismissed bacteria pathogens, bacteria, viruses, and other disease-causing agents as a reason to use the insurance for rent or other expenses.

Overall, a tenant may have the ability to use business interruption insurance to help their business due to COVID. We suggest tenants call their insurance brokers to see if they have the option to use business interruption insurance to pay their rent and/or employees.