Nobody saw the COVID-19 pandemic coming. When small business owners took out insurance claims with the intent to protect their business, livelihood and families they felt they were protected.

Recently, insurers have been denying business interruption claims submitted by businesses. Yet the loss of business is real. Entertainment and restaurants were possibly the hardest hit with eateries seeing a 41% drop the first week of April, according to reporting by NDP. 

Why insurers say they do not have to pay

There are many reasons why an insurance company may attempt to deny a claim. Insurance is a business with the goal of selling a service. The insurance company then uses the profits made to make more money. It is in the insurance company’s best interest to deny any payout it can to be more profitable.

Insurance companies may claim an exception because after the SARS 2003 outbreak, insurance industry regulators approved an exception for viruses and bacterial outbreaks. Insurers then deny claims, stating that since the exception for COVID-19 is not spelled out in the policy, it is included in the outbreak exception.

For example, Lloyd’s of London “anticipatorily repudiated” coverage stating that COVID-19 “is not covered under the Pandemic Event Endorsement” because it is not named in the endorsement. This begs the questions that if a virus is unknown and therefore unnamed at the time the policy is created, how can a small business owner list it to include it?

Insurance companies may also claim that, unlike a tornado, flood or other natural disaster, a pandemic is not geographically controlled nor time-controlled: its duration is potentially infinite and everywhere.

The insurance industry may also state that paying out for loss of income due to business interruption during the pandemic could bankrupt the insurance industry. Spokespeople and pundits have posited that it will be largely the federal government’s job to pay businesses or to adequately incentivise small businesses for their loss.

Special riders can protect businesses

A business may have purchased a rider (a policy amendment or addition) that would cover such things as a pandemic. This may be called pandemic event specialized coverage or communicable disease coverage.

Businesses in certain geographic areas may also have included rider for bacterial, fungal, wet or dry rot and a bacterial, or viral outbreak. These riders are enforceable and, given no exclusions to the contrary in the agreement, business owners should be able to collect.

Even though a business may not have suffered structural damage and loss of physical property, if a business owner purchased a rider or special endorsement, then it’s very likely that business would be covered for the the loss they suffered due to business interruption.

In many legal cases property is not limited to physical items or the brick and mortar edifice of the business. “Property” can in some cases include a job or income.

Legislators are introducing bills to help small businesses

In California, U.S. Representative Mike Thompson unveiled a bill that would force insurers to honor claims. The bill would nullify any exclusion and state preemptions would not be allowed. Other states have also seen similar bills including New York, South Carolina and Ohio.

Does your policy cover business interruption due a pandemic? If you are uncertain speak to a legal professional with experience in consumer rights issues.

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