Will Business Interruption Insurance Cover Mandatory Closures During Pandemics?
During the ongoing pandemic, many state governors have issued emergency orders mandating the closure of restaurants and bars to control the spread of the virus. This raises a critical question for business owners: will business interruption insurance cover losses resulting from these mandatory closures? In this article, we'll explore the factors that determine whether such losses are covered by business interruption policies and discuss the challenges in obtaining such coverage.
The Current Legal Status and Insurance Coverage
Currently, there is no federal law mandating that business interruption insurance covers losses related to the pandemic. Insurance companies often cite the
pandemic clausein their policies, which excludes coverage for losses from pandemics. However, some argue that the pandemic should be considered a covered event if Congress passes a law to include it.
Insurance Company Perspectives
Much of the debate surrounds the specific wording of the insurance policies. According to one insurance representative,
business interruption coverage is typically triggered by covered perils such as fires or floods, not pandemics. They further explain that many policies contain a viruses and bacteria exclusion, which specifically excludes coverage for such losses.
Policy Considerations and Conditions
For business owners seeking coverage, carefully examining the policy conditions is essential. The
Material Damage Policy for fire and allied perils insurancetypically covers physical damage but not losses from pandemics. Business interruption coverage typically follows the
Material Damage Policy (MDP), meaning any BIP claim depends on the admissibility of a claim under the MDP.
Conclusion
The coverage of business interruption insurance for losses resulting from mandatory closures during pandemics is largely dependent on the specific wording of the insurance policy and the presence of any exclusions or conditions. Given the current legal status, it appears that such losses are not typically covered unless Congress takes action to change the policies.
Pandemic Clause
Pandemics are often explicitly excluded from coverage in business interruption policies. This clause states that the insurance does not cover losses or damages directly resulting from a pandemic. Business owners should carefully review the policy to determine if the pandemic clause is present and if any extensions or modifications have been made.
Wording of the Policy
The wording of the policy is crucial in determining if pandemics fall under covered events. Most business interruption policies are triggered by covered perils such as fires, floods, or earthquakes. Since these are not related to pandemics, losses from such events would not be covered.
Material Damage Policy (MDP) Exclusions
The MDP is designed to cover physical damage caused by covered perils. However, it typically excludes losses resulting from pandemics. This exclusion can be found in the policy conditions and is often part of the viruses and bacteria exclusion clause.
Material Damage Policy (MDP)
Under the MDP, business interruption coverage works in conjunction with the policy's coverage of material damage. Any claim for business interruption becomes payable only when a claim is admitted under the MDP. This means that in the absence of physical damage, there is no trigger for business interruption coverage.