If you operate a business that has taken a financial hit due to a disaster, your insurance policy may offer some relief. Many policies include business interruption insurance coverage that can replace lost income and other necessary expenses. Unfortunately, the claims process can be tedious and frustrating as insurance companies deny claims whenever possible.

If your claim was denied after a catastrophe like a fire, lightning strike, flood, or even COVID-19, you might need to speak with a Los Angeles business interruption insurance lawyer about fighting the denial with a bad faith claim.

At Salamati Law, we provide informed and high-quality representation to clients throughout Southern California. We work with businesses that have been negatively impacted by unforeseeable events– so that they can recover the insurance proceeds they need to survive hard times and get back up and running. If your loss of business income insurance claim was wrongfully denied, we might be able to help.

What is business interruption insurance?

Business interruption (“BI”) insurance is also referred to as business income insurance. It may be offered as a stand-alone policy but is more often bundled in a business owner’s policy, either as a protection in the property, casualty, or comprehensive coverage or as an add-on rider.

Business interruption insurance policies can be broken into two categories: named perils or all-risk. Named perils policies only provide coverage for risks specifically listed in the policy, and even then, coverage is usually whittled down even further by exclusions.

All-risk policies tend to be more expensive and more comprehensive because they cover any risks that are not explicitly excluded. It is crucial to find out whether the event that caused your business interruption falls under the perils listed in the coverages, or exclusions in your policy.

What triggers the application of business interruption insurance

Insurance policies may be written by the insurance carrier, but more often, they are based, either completely or in an edited form, on what is known as an ISO form. These forms are released by the Insurance Services Office and are among the more commonly seen provisions. A typical ISO Business interruption insurance coverage provision states something similar to:

We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by direct physical loss of or damage to covered property. The loss or damage must be caused by or result from a covered cause of loss.

In sum, your business must experience (1) actual loss; (2) suspension of operations; (3) direct physical loss or damage to covered property; and (4) it is caused by a loss covered under the policy.

Provisions like this are most easily applied to situations like fire damage that cause a shutdown, but courts have found them to apply them to cases where the physical damage is not as obvious as well.

Losses covered by business interruption insurance

Business interruption insurance pays for certain losses that the insured incurs due to suspended operations caused by a covered event. The policy may also provide coverage for shutdown operations due to civil authority orders.

Losses that may be compensated can include:

  • Lost revenue
  • Loan repayments
  • Operation expenses like employee wages, lease and rent payments, taxes, and the cost of relocation for temporary operations during a shutdown

A business interruption insurance denial lawyer can help you prove these and any other covered losses so that you can recover the most compensation possible.

Losses not covered by business interruption insurance

Insurance acts as a safety net that pays according to the policy terms for unexpected events, so not all of a business’s financial losses would be covered. The specifics will depend on the terms of the policy, however the following are generally not included:

  • Utilities – Your business interruption coverage may pay for regular expenses like utilities that continue during a shutdown. Still, if your business is interrupted by damage to utilities, like downed power lines due to a storm, it may not be covered. It is good to have an expert review your policy because utilities interruption coverage may be an optional policy addition.
  • Voluntary closures – If you had the option to keep your business operating but chose not to, there is no obligation for the insurance company to pay.
  • Perils that are not covered – If your policy does not cover losses due to an event, such as a flood, then it will not pay for business interruption due to that event.
  • Unproven losses – Insurance companies do not work on the honor system. If you claim lost revenue or ongoing costs, you will need documentation from the last several months to prove your business’s financials before the loss event and after. This is especially important if the business is new or going through a growth spurt.

If you believe your insurance company stepped out of bounds in declaring your losses not eligible for reimbursement, a bad faith insurance lawyer can help you receive the compensation owed under your policy.

Will my business interruption insurance cover a coronavirus shutdown?

The unique and far-reaching effects of the COVID-19 shutdown– including business closures, interruptions to the supply chain, and market effects of social distancing– is estimated to lead to COVID-19 business interruption insurance claims totaling between $100 billion and nearly $300 billion per month.

In most cases, your business interruption insurance coverage will work in conjunction with the main portion of your business policy. For example, if your commercial policy excludes damage caused by windstorms, then your business interruption claim for a windstorm would also not be covered. Similarly, if your business has been damaged by a COVID-19-related shutdown, to succeed on a business interruption insurance claim, your policy needs to insure against a peril that will cover it.

These times are raising unique legal questions when it comes to insurance policies. Some questions your lawyer will look at include:

  • Did the virus or resulting safety standards cause de facto physical harm to your workplace?
  • Is there a virus exclusion in the policy terms?
  • Does your policy extend civil authority coverage for shutdowns by order of federal, state, or local government?
  • Does your policy extend contingent business interruption coverage to cover losses incurred due to third-party business closures (such as crucial suppliers) that impacts your business?
  • Will proposed legislation render pandemic losses covered where they might not otherwise have been?

Your attorney will look at your situation from several angles to determine whether the policy covers your Coronavirus revenue decline.

Discuss your case with a California lawyer

If your business has sustained significant financial loss due to an unforeseen shutdown and believe the insurance company has unfairly denied your business interruption insurance claim, discuss your case with a Los Angeles business interruption insurance claim denial lawyer at Salamati Law.

Our team is committed to helping your business get through this tough time. Call us today to schedule a free consultation to learn about your legal options.

Los Angeles Business Interruption Insurance Law Blog