By Brian S. Kabateck
When disaster strikes, insurance is a safety net that helps policyholders recover from catastrophic events such as wildfires, floods and auto accidents. In the wake of COVID-19, many “non-essential” businesses nationwide are struggling to survive this sudden financial calamity which has triggered massive layoffs and unpaid obligations.
Never before has the insurance industry played such a critical role in helping the business community recover from economic ruin through the power of business interruption insurance.
Business interruption coverage can serve as a form of relief from the devastating financial stress caused by these closures and is typically intended to cover losses from interruptions to a company’s operations, including lost revenues and other expenses such as payroll.
Many commercial insurance policies contain clauses that may cover losses suffered as a result of an order issued by the government, such as the recent orders restricting access to restaurants, bars and other public establishments.
Insurance can provide an avenue for relief when the interruption is the result of an order by “civil authority” which is issued by government entities for businesses to shut-down or restrict access to the public, such as the closures imposed by cities and counties because of the COVID-19 pandemic.
Policyholders are now facing challenges when trying to recoup their losses. Business interruption claims are typically complicated and many policyholders are unaware that there are multiple avenues to finding coverage.
Some policy forms exclude coverage for viruses. The Insurance Services Organization has a form used by many insurance companies with an endorsement at the back of the policy that specifically excludes loss for viruses and bacteria. A policyholder may have that endorsement, and it may be much harder to obtain a payout. However, under the standard ISO form, there may be coverage, including contamination or the impact of governmental authority.
Some states are beginning to recognize how government intervention may provide the economic lifeline these businesses need to weather the coronavirus storm. New Jersey lawmakers are proposing the state force insurers to issue payouts for business interruption and California Gov. Gavin Newsom’s office is looking into ways to compel insurance companies to fulfill their obligations to policyholders who are facing financial hardships. City leaders such as Los Angeles Mayor Eric Garcetti are also taking steps to find patchwork solutions such as offering no-fee microloans that business owners can use to cover immediate expenses.
California Insurance Commissioner Ricardo Lara has reportedly reached out to House Speaker Nancy Pelosi and other congressional leaders alerting them to the dire need for grants and interest-free loans in the stimulus package. However, it’s unclear what steps the insurance industry is willing to take to cover coronavirus claims. Ultimately, business owners purchase insurance for catastrophic events. This is one of the most catastrophic events of recent memory and business owners deserve to have their voice heard.
Small business owners and entrepreneurs are our nation’s economic engine which has now stalled. State and federal leaders are scrambling to deliver financial assistance but it could take weeks or even months before checks are in the mail. It’s time for the insurance community to step in and help in this time of unprecedented need.