On Sunday morning, Nashville Mayor John Cooper took bold action in response to the coronavirus spread: He entered the Safer at Home Order, which ordered Nashvillians to, generally, stay at home and ordered the closure of non-essential businesses.
Because the Order requires businesses that are “non-essential” to close, did the Mayor do those businesses a big favor, in the event that they decide to make a claim under a business interruption insurance policy?
Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted for some reason, such as a fire or a natural disaster.
This coverage seems like it’d be very helpful to a business that was ordered by the government to shut down during a pandemic, right? Well, it depends on the specific language in the insurance policy.
Remember, insurance companies write these policies, so most will contain text that is as narrow as possible.
Duration of Shutdown? It will be narrow in duration (i.e. only as long as needed to re-establish operations). As an example, after 9/11, one case held that, once the business owner could physically return to their building, the coverage ended (on 9/18).
But what about coronvirus, when we are prohibited from leaving the house by express order of the government and we definitely can’t go to our business? Seems like a coverable event. Again, though, look the the text of the policy.
Is it a shutdown or a “slow down”? Courts generally require a complete shutdown. Again, good for a Nashville business.
Some interesting questions:
- If the entirety of your business activities cease; probably a suspension
- If an entire portion of your business closes but another portion remains
- If your normal business activities close, but you convert your business into a
new but less profitable activity?
So, if you’re a bar that focuses on, let’s say, axe throwing but also serves nachos, and, after the coronavirus, you offer home delivery nachos, are you really shut-down?
Does your policy require the shutdown to be caused by a physical loss or property damage (like a tornado)? Is contamination from a deadly, contagious virus “damage to property”? Maybe…there are cases on dangerous levels of gases that are found to be damage to property. But, do you have to show documented instances of COVID-19 at your business to get coverage? Also, maybe.
Is there text referencing an Order of Civil Authority? Some policies actually reference shutdowns when access to real or personal property is prohibited by order of civil or military authority. Here, is the Safer at Home Order a recommendation or an order? Is your businesses clearly not an “essential” business that can stay open?
As a bankruptcy lawyer who rarely gets to fight the exciting fights, I really appreciate the interesting days and arguments that await the insurance lawyer bar over the next few weeks, months, and years.
My advice, today, is to: Pull a copy of your businesses’ insurance policy, and see if it includes business interruption coverage. If it’s a close call, make a claim and see what happens.