Many businesses have insurance that provides payouts if business is interrupted involuntarily. In most such policies, the disruption must be the result of property damage, such as caused by flooding or fire.
Whether there is coverage as a result of being shut down due to the COVID-19 virus remains uncertain and will most certainly be litigated, both in California and elsewhere. The chances of coverage improve if it is determined that someone who was infected, whether an employee, a customer or vendor. If coverage is found to exist because of COVID-19, many policies also have what is known as a “civil authority” clause that is triggered when the business is shut down because of “property damage” in the community that resulted in a government shut-down. There are exclusions in many policies some form of contamination, of which COVID-19 is one. These exclusions should be read carefully because they likely did not envision what has happened.
With the closure of businesses having occurred two months ago, the “notice” provisions (requiring that a claim to the insurance company be made within a certain time limitation) of some policies may be an issue. This also means that a business should make a claim now even if it is not clear whether their particular policy provides coverage.
In summary, whether there is coverage under the business interruption coverage of an insurance policy depends on (1) whether the disruption was the result of “property damage” within the meaning of the policy, (2) whether there is a “contamination” exclusion clause and whether it applies, and (3) making a timely claim.
Certainly, the business owner can make a claim on their own and deal with whether there is coverage later. However, many policies also have provisions that attempt to shorten the time the insured has to initiate litigation in the event of a denied claim. It is advisable to have an attorney review the policy with you to understand what the issues are before the claim is denied and before the deadline to file a lawsuit or demand arbitration is imminent.
