Does Business Interruption Insurance Cover My Small Business Losses Related to COVID-19?

According to a recent survey, personal services, like beauty salons and dry cleaners, and hospitality businesses, like hotels and restaurants, are the most likely business to suffer catastrophic losses because of coronavirus quarantines. Paycheck Protection Program loans offer some relief. But PPP is a first-come, first-served program. So, there will probably not be enough money to go around.

In order to keep their doors open, many small business owners who have suffered significant losses are counting on business interruption insurance payments. But almost all insurance companies deny these claims, at least initially. An assertive Kansas City insurance lawyer holds stingy insurance companies accountable to the promises they made.

Policy Issues

COVID-19 is not the first coronavirus outbreak. That was the SARS (Severe Acute Respiratory Syndrome) outbreak in 2002. SARS, which had a much higher mortality rate than COVID-19, was quite serious in China and East Asia. However, there were fewer than a dozen cases in the United States.

As a result of this outbreak, in the mid-2000s, many insurance companies modified their business interruption policies. Traditionally, these policies cover losses related to fires, earthquakes, and other natural disasters. These modifications specifically excluded losses related to contagious disease outbreaks.

If your policy has such an exclusion, the insurance company has the advantage of coronavirus business interruption disputes. But if your policy has no such exclusion, the policyholder has the advantage. Generally, these policies include one of two clauses:

  • Physical Damage: Many insurance companies argue that coronavirus caused no physical damage. While COVID-19 is not like a fire or a flood, the virus does live on surfaces. That’s one reason governments ordered quarantines and business closures.
  • Civil Action: Many restaurants could technically stay open during the lockdown, but they could only offer take-out or delivery. For most kinds of restaurants, it would have been more expensive to stay open than to close given these limitations.

Business interruption triggers direct and indirect losses. The lost revenue is only part of the picture. When businesses close, customers change their spending habits. Frequently, these habits don’t change when the crisis ends.

Insurance Company Responsibilities

Under Missouri law, insurance companies usually have a duty to investigate claims. They cannot simply rubber-stamp them “paid” or “denied.” Instead, they must look at the nature of the claim, and the nature of the loss, to determine if coverage applied.

Additionally, insurance companies have a duty to pay the full insured value of the claim. Insurance companies bear complete financial risk. They cannot use depreciation or partial opening as an excuse to reduce payment.

Finally, these things must happen quickly. Typically, insurance companies have a duty to pay or deny claims within ninety days. If they drag their feet, an attorney knows how to spur them into action.

A business interruption payment could be the slight boost your business needs to stay open. For a free consultation with an experienced bad faith insurance lawyer in Kansas City, contact the Krause and Kinsman Law Firm. We do not charge upfront legal fees in these matters.

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