Covid-19 and Business Interruption

Covid-19 continues to impact everyone in every aspect of their personal and business lives.  Subsequent to prior health scares, such as SARS, insurance companies took steps to minimize the significance of business interruption insurance with the virus exclusion.  To combat the expected declinations of coverage by insurers, Legislation has now been proposed in New Jersey (Draft Bill A-3844) to mandate that insurers pay on business interruption claims related to COVID-19 through their existing policies.  Essentially, A-3844 would void any virus exclusions.

Business Interruption Insurance helps a business owner to recover in time of need after suffering a loss, by providing insurance protection for lost rents, income and sales during the period of time that the business is closed either partially or completely, as the result of a specific event.  The proposed legislation would mandate coverage for business interruption during the period of the declared state of emergency due to the COVID-19 pandemic.

If New Jersey passes this legislation and you currently have business interruption insurance, you may be entitled to file a claim if your business experienced a loss.  Business interruption insurance indemnifies the insured for income lost “but for” the event and possibly other expenses incurred to mitigate the loss.  The insurance coverage is designed to make the insured whole and is for the actual loss sustained.  As such, deductions must be taken for certain expenses that were not incurred during the loss period.  The insured’s ability to mitigate their loss either during the loss period or shortly thereafter must be considered.  The amount that will be recouped by the business will not exceed the limit stated in the policy.

Businesses need to calculate what their actual losses are and need to analyze profit and loss statements for the period of time prior to the date of the loss. Lost sales are a key component.  If you have business interruption insurance, you should review your policy sooner rather than later and discuss same with your insurance agent.  The current proposed version of the bill would make it retroactive to March 9, 2020 when New Jersey first declared a state of emergency.  We will keep you apprised of any further action in Trenton.

Please do not hesitate to contact our office with any questions and please continue to stay safe and healthy.

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