If you have been watching the news or even reading it online, you have heard a lot of discussion about Business Interruption Insurance and whether or not the insurance companies should pay claims to businesses for being closed during the Covid-19 pandemic. 
If you just look at the name of the coverage “business interruption”, it might make sense that this coverage would pay. Most of the news coverage paints a picture that insurance companies are trying to get out of paying claims.
Let’s look more closely at the context of Business Interruption insurance which is important to understanding how the coverage works. Business Interruption coverage is part of the Commercial Property Insurance policy that intends to provide the insured business with payment for lost income during the “interruption of business” when insured’s location has been damaged by a covered loss like a fire. So in the case of fire, the business has to be closed during the repair or rebuilding of the premises thus interrupting business. 
Think of the Property Insurance policy as an Ice Cream Sundae. The Property Insurance policy pays for repairs to the building up to the policy limit- (the ice cream), repairs or replacement of the insured’s contents (the chocolate fudge), and reimbursement for lost income (during the interruption of business) while the repairs are being made (cherry on top). This is how business interruption coverage works.
Let’s take it one step further – “insurance” as a concept is for many parties to pay a relatively small premium, in advance of a loss, which is pooled to pay for losses that happen to relatively few insured’s. The concept behind insurance is that the pool is funded by many and used by few. The few that tap the pool, usually do so far relatively large sums!
In the case of a fire, let’s say the average property policy is $5,000 (just for example – they vary by location and amount of coverage), but total fire losses can be in the millions of dollars in some cases. It takes a lot of $5,000 policies to pay even one $1,000,000 claim!
You can see how business interruption due to an occurrence such as a pandemic would not be insurable. Potentially, everyone in the “pool” would be affected at the same time, so pandemics or viruses are not insurable based on the “pooling” concept. And not by chance, “damage” by virus is excluded from most property insurance policies.
Our goal with this post is to educate objectively. Our job as brokers is to be advocates for our clients, and when clients call and ask about this coverage, we explain the intent of the coverage and how it works. We also explain that we are not claims adjusters and will happily and willingly turn in a claim for the client. We certainly don’t want to mislead anyone into thinking coverage may be triggered by shelter in place.
We encourage you to call us with questions regarding any insurance coverage.
