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COVID-19 Pandemic vs. Business Income Insurance

Business Income Insurance

Business Income Insurance – also referred to as Business Interruption Coverage – is a lifeline for many businesses impacted by the coronavirus pandemic. During the government lockdown, revenue for all “essential” businesses continued, however, countless non-essential businesses suffered from diminished, and in some cases, evaporated streams of income.

What Is Business Income Insurance?

The definition of Business Income Insurance varies in the wording among different insurance carriers with one exception, “covered peril.” A simple definition is Business Income Insurance helps cover lost income and pay for extra expenses when a business is affected by or must shut down due to covered peril. This coverage is usually part of the business owner’s insurance policy.

Covered peril refers to things like fire, theft, and wind. This means that coverage is only triggered, in most policies, by having physical damage to the insured property. The coronavirus pandemic did not affect most businesses in this way. However, there may be other options in the insurance policy to help cover loss of income from COVID-19.

Business Income Insurance Coverage Options

Some policies have additional options, including a Civil Authority coverage clause, Contingent Property Insurance or Dependent Property Insurance: (a/k/a Supply Chain coverage), and an infectious disease clause. Since the COVID-19 pandemic is unprecedented, even the infectious disease clause may not cover businesses, especially if they did not close due to the owner or employees contracting the virus. So what can businesses do to recuperate loss revenue?

Review: Read through the Business Income Insurance policy and all the additional clauses to understand the coverage and terms for filing a claim.

Gather: Get all the financial data for the business including income from this time last year, income from the beginning of this year, and income through the pandemic. Also, be sure to have documentation regarding payroll, inventory, bank statements, budgets and expenses, and forecasts – both pre- and post-pandemic. The numbers need to clearly show the effects of COVID-19 on income, and the ability to bring in revenue.

Discuss: Now is the time for a conversation with the insurance agent. They will have in-depth knowledge of how to interpret the terms of coverage as well as all changes happening in the insurance industry.

Rebuilding the Economy

Government agencies at all levels – federal, state, and local – understand the challenges businesses have faced due to the pandemic. Rebuilding the economy is second only to keeping everyone safe, so our elected officials are addressing the issue and starting to take action.

New Jersey, New York, and Pennsylvania have all introduced bills calling for insurance carriers to cover business losses for businesses with Business Income Insurance policies that were in effect before the pandemic started. Most of these bills, if passed, will be retroactive to the date each state first declared a Proclamation of Disaster Emergency because of the pandemic.

On the federal level, the U.S. House of Representatives introduced two pieces of legislation that would also seek to force insurance carriers to cover income losses for those businesses with existing Business Income insurance policies. This legislation would apply to property and casualty insurance policies.

The bill, H.R. 6494, introduced on April 14, 2020, includes the following terminology:

“Effective upon the date of the enactment of this Act, each insurer that offers or makes available business interruption insurance coverage—

(1) shall make available, in all of its policies providing business interruption insurance, coverage for losses resulting from—

(A) any viral pandemic…”

The bill, H.R. 6497, the “Never Again Small Business Protection Act of 2020” also introduced on April 14, 2020, includes the following terminology:

“Effective only upon the publication of certification by the Secretary of the Treasury pursuant to section 5 and subject to sections 3 and 4, each insurer that offers or makes available business interruption insurance coverage shall make available, to for-profit and nonprofit businesses and other entities, optional additional coverage that—

(1) covers solely losses that—

(A) result from business interruption due to any order, by any officer or agency of the Federal Government or of any State or local government, requiring cessation of operations during a national emergency; and

(B) occur in any area to which such national emergency applies and during the period of such application; and

(2) covers such losses for a continuous period that begins upon the declaration of the national emergency and is not shorter than 30 days…”

There is a third bill, H.R. 7011, the “To establish a Pandemic Risk Reinsurance Program, and for other purposes” introduced on May 26, 2020, that does not yet have any official text available.

If any, or all of these bills turn into laws, insurance carriers will have a backlog of policies and claims to review and will do so with a fine-tooth comb, to ensure that they are followed to the letter.

This is additional motivation for businesses to have all the paperwork in order, alleviating some of the work for the insurance carriers and potentially accelerating payment.

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