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Does Business Interruption Insurance Cover COVID-19 Claims?

The COVID-19 outbreak is no longer news as the global pandemic is spreading rapidly, ravaging as it goes.

Since its outbreak in the Fall of 2019, the pandemic has raised serious concerns world over. It has succeeded in keeping health practitioners on their feet as more than ever before much attention has been placed on them to find a cure.

Institutions, organizations, governments, schools, places of worship, and businesses have suffered a painful halt in their operations as global lockdowns were observed.

The effect of the virus outbreak on businesses is untold. A large number of businesses had to shut down their activities in keeping step with government directives.

This indefinite closure had a toil on businesses as very many are nearing bankruptcy with employers considering the option of letting go of some employees to salvage what is left of their businesses.

With well over 17 million confirmed cases, 670,463 deaths, and no cure, coronavirus is still slowing down and disrupting the operations of many businesses.

Following directives by the Governors of Connecticut, California, New Jersey, and New York, asking for the closure of non-essential businesses on the 23rd of March, 2020, affected business owners began to ask questions and to review their insurance coverages with the hope that insurance will cover for the loss their businesses will incur due to the closure.

Everyone’s attention shifted to the business interruption insurance coverage if by chance insurance companies will cover and probably lessen the losses a business may suffer during the COVID-19 lockdown.

The big question is: does the business income insurance cover COVID-19 claims?

To answer that, let’s look at the provisions of business interruption insurance coverage.

Business Interruption Insurance Coverage

A Business interruption insurance compensates a business when an event takes place that slowed down or temporarily shuts down causing the business to suffer some form of loss. 

Basically, business interruption insurance covers short-term losses. The losses a typical business interruption insurance coverage will only compensate a business when the inability to continue business operations is due to a fire outbreak or storm which caused physical damage to the business property.

By implication, a business’s claim for a business interruption cover is when the business discontinuity is based on a fire outbreak or a natural disaster.

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The standard stipulations and provisions in a business interruption insurance coverage do not cover COVID-19 lockdown claims even though it is expected to cover a business that has to shut down or stop its activities.

In the United States, members of Congress have called on insurance companies and firms to create a provision in business interruption policies to cushion the effect of the COVID-19 pandemic on businesses.

Insurance companies in the United States have responded that since there have been no physical damages on the properties of the business owners then they are not liable to any insurance claim relating to COVID-19.

It is quite important to note that in a business interruption insurance coverage there is an express stipulation that the insurance policy will not account for disruptions caused by viral contamination and communicable diseases.

As such, business owners should not expect coverage for the disruption of business activities by the COVID-19 pandemic or the outbreak of any disease.

Also, the National Association of Insurance Commissioners (NAIC), has urged the United States Congress not to take any action that will require insurance companies to cover Covid-19 claims as part of Business Interruption Insurance.

The national body which comprises insurance regulators from the 50 states that make up the United States including the District of Columbia, warned that forcing insurance firms to cover COVID-19 claims puts them at risk of insolvency adding these insurance companies were not left out of the COVID-19 lockdown.

According to the Contracts Clause of the United States Constitution, the State is prohibited from enacting legislation that seeks to impair contractual obligations and resolutions, although with some exceptions.

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From all indications, the business income insurance policy does not cover COVID-19 claims. Business owners can only hope that legislations find a way around the stand of the National Association of Insurance Commissioners (NAIC) and insurance bodies.

If this happens, there are tendencies that the business interruption insurance policy will make provision for COVID-19 claims or a separate policy may be issued to salvage businesses.

There are prospects that some business interruption insurance covers for viral and communicable diseases which is dependent on the agreement reached before now. In such a situation, with a good interpretation and an insurance broker, one can file for COVID-19 claims.

Businesses whose insurance does not make for this allowance would only hope that Congress legislations are approved in their favour.

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