Understanding your business interruption coverage and what rights you have can be complicated and confusing.
Mark Nation, who heads our national Insurance Recovery Group practice area, has spent 30 years studying insurance policies — so you don’t have to. Nation, who is Board Certified in civil trial law and business litigation, routinely represents individuals as well as small and large businesses nationwide in disputes with their own insurance companies.
Nation answers some questions that business owners are asking about their business interruption claims.
1. My business closed because of government shutdowns, and I filed my business interruption insurance claim. The insurance company denied my claim, what do I do now?
Let [a lawyer] review that denial for you - and I’m happy to review it for free. If the insurance company is doing the right thing, I’ll tell you that. And if they’re not, I will tell you that too.
The most important information I want to get out to somebody in your situation is: Don’t be intimidated by the denial. Every case that I’ve ever won, they’ve all started with “No.” In fact, I can’t win your case until I get the denial. That’s important, that you just don’t give up or make the decision on your own that there’s nothing that can be done.
2. Are there exclusions that apply to my business interruption claim?
There are many, many business interruption policies that have no exclusion at all that deals with what’s going on now. And then, there are some [policies] that have an exclusion that the insurance companies say apply, and those exclusions have nothing at all to do with this situation. And then, there are other policies that do have an exclusion that we will have to put into court, and the court is going to have to decide whether or not those exclusions apply.
Insurance companies are acting like this has all been decided. However, the primary issue in the cases where the policy does have an actual virus exclusion - those cases have not been litigated, and there are significant issues about the applicability of those exclusions in this situation.
I am of very strong opinion that most of those exclusions are talking about a situation where a virus has gotten into the building and damaged the building. What we have is a totally different situation — where you’ve got a shutdown as a result of Covid circulating in the environment outside of the building. It is my position, based on the wording of the policy and the exclusion — and every word matters — that the exclusion does not apply to this situation.
3. My business interruption insurance claim was denied because there was no physical damage to my place of business, is my fight over?
The answer is no. The fight is not over. And here’s why: These insurance policies that contain the business interruption coverage usually have two different triggers.
[The policy] says that your suspension of operations has to be caused by the “direct physical loss of or damage to property.” Those are two different things. There’s an “or” between them. The insurance company wrote them intending that they represented two different types of laws.
However, what I’m seeing time and again in denial letters from insurance companies is they combine the two. They say you have no coverage because there is no “direct physical damage.” Those words are not in the policy. The policy says: “direct physical loss of OR damage to property.” “Direct physical loss of” is very different from “damage.”
I’ll give you an easy example of direct physical loss. Somebody steals your car. Your car’s gone; it’s not damaged. You have, under the law, suffered direct physical loss of your car, because you can no longer use it for its intended purpose. It’s not damaged. It might get damaged - in which case both those tiggers would apply.
The same situation applies when you’ve lost the intended use of your building. You can no longer use it for its intended purpose. That is a direct physical loss of the insured property. Coverage is triggered.
4. My business operates in a state where businesses are starting to open again. I was shut down for seven weeks and lost a lot of revenue, can I still file a business interruption insurance claim?
Absolutely. In fact, that’s one of the main purposes of your business interruption.The fact that you’re back in business now, doesn’t prohibit you from filing the claim and getting paid.
There are two parts of it: You have compensation during the time you were shut down or your operations were limited. Then, once everything is opened back up, we all recognize and most insurance policies recognize that there’s going to be a time period of ramping back up to get your profits up. Both those situations are contemplated under most policies.
5. I applied for PPP and was granted a loan, can I still file a business interruption insurance claim?
Absolutely. The real question is: Does the insurance company get an offset for any of the money that you got under PPP? The short answer is: It depends. It depends on what state and what the law is in that state. Many states would not allow the insurance company to take an offset for any of the PPP money.
People should not be hesitant to file a claim just because they got PPP money. And if the insurance company says either 1) you can’t recover or 2) you get a reduction for the PPP money, you need to let a lawyer look at that and let you know if what they’re saying is true or not.
6. I received an SBA loan, does that mean I can't file my business interruption insurance claim?
You can file it, and you can still get compensated for it. Sometimes the SBA is going to be entitled to be reimbursed if you get “double compensated.” But, what happens is insurance companies sometimes try to trick you and tell you that they don’t have to pay because you got an SBA loan. Not true.
If you get an SBA loan — and this is different from PPP — then in that circumstance sometimes the SBA is entitled to get reimbursed that money if you get paid for it from your insurance company. So, it’s the reverse of what most insurance companies will tell you
7. Should I file my business interruption claim with my insurance agent or the insurance company?
You should file your business interruption claim with both.
The problem some people run into is they file it only with their insurance broker. Then the insurance broker will say it’s not covered, and then they don’t send it on to the insurance company. And so, the company is never put on notice. Then later, if you try to file a claim, the insurance company may say, “Hey, you were supposed to give prompt notice of your claim to us, and you didn’t do it.”
So just give notice to the insurance company — their full name and their address is in the policy itself — and to your broker. Better yet, hire a lawyer who will take this on a contingency fee like I do. Let us file the claim on your behalf, because there are other problems that people run into filing these claims on their own.
This interview has been edited and condensed for clarity.