Recovering Business Losses Resulting from COVID-19

To our friends and clients—

As the coronavirus disease 2019 (COVID-19) outbreak continues to evolve, many businesses are beginning to face significant economic challenges as a result of event cancellations, the inability to access offices, warehouses and production facilities, supply chain disruptions, decreases in consumer demand, staffing reductions, and even complete suspension of operations.

Understanding the business risks and legal issues your business may face is key to navigating these uncertain times.  While COVID-19 will continue to affect our day-to-day lives, it is important to stay informed and to plan ahead.

Here is a short overview on how your business may be in a position to offset economic losses associated with COVID-19.

Are My Losses Covered by Insurance?

The short answer?  It depends.  The specific language in your policy will determine whether your losses are covered, to what extent, and how long coverage will last.  Business interruption insurance is the most likely form of insurance to cover business losses resulting from COVID-19.  This form of insurance is typically purchased as an “add-on” to a property damage insurance policy.

Generally, for business interruption coverage to apply, there first must be a “direct physical loss or damage” to insured property (your property or potentially a third party’s property such as a supplier or manufacturer) that results in the partial or total closure of your business.  Therefore, the key question is whether COVID-19 qualifies as “property damage” per the terms of your policy and whether any policy exclusions would bar coverage for COVID-19 losses.  Be wary that some policies contain virus exclusions to preclude coverage for virus-related losses.  But an exclusion for bacteria or a bacterial infection would probably not operate as an exclusion for a virus or viral infection.

If a state, federal or military body issues an order that restricts or prohibits access to your business facilities, you may also have coverage under a “civil or military authority” provision in your policy, even if you have no “direct physical loss or damage” to your insured property.

In addition to business interruption insurance, event cancellation insurance is a specialized form of coverage that may cover certain loss of revenue resulting from event cancellations caused by the COVID-19 outbreak.  Like business interruption insurance, the wording of the policy determines the scope of coverage.

If you need help in reviewing your policy to understand whether your business losses are covered, please contact the Gordon Arata attorney with whom you work.

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