Assessing Coronavirus Insurance Coverage Risks for Restaurants

Restaurant and business owners should always be prepared in the event of loss or damage to normal business operations. For that reason, restaurant and business owners typically carry business income coverage, also referred to as business interruption coverage, which is insurance coverage intended to replace lost income in the event business is halted or interrupted for some reason, such as a natural disaster. Navigating these policies and their intricacies is a daunting task, even for some experts in the insurance industry. Experts from both sides of the table have varying opinions regarding the extent of coverage afforded to businesses suffering losses.

In order to be best prepared to claim for loss of or damage to normal business operations, we recommend the following steps:

1. Compile all of their current insurance policies, both in hard copy and digital format.

2. Compile one-to-three years of financials and tax returns. If you are seasonal business, make sure you also collect year over year income statements for your busier times.

3. Stay up-to-date on the news and current developments from reputable sources, such as, CDC.gov, WHO.int, Small business administration.

4. Develop a communication plan with your employees that includes up to date info on the virus and keep communication open and morale up.

5. Develop an activation plan once City, State and Federal ordinances allow businesses to open back up completely.

There are two standard business income coverage forms: the business income and extra expense coverage form and the business income coverage form without extra expense. Things that can be claimed under business income insurance include, but are not limited to, net income, operating expenses, and payroll. Under the business income and extra expense coverage form, the Insurer will pay for the actual loss of business income sustained due to the necessary suspension of your business operations during the period of restoration. Regardless, most insurance companies will argue that the suspension must be caused by direct physical loss or damage to specific property and the loss or damage must be caused by or result from a cause of loss covered in the policy. Various terms in your policy will have specific definitions provided for in your policy, so retaining an expert to review your policy and consult with is always recommended.

If you continue to operate by altering your operations or supplement your normal business functions to generate income, such as take-out or delivery, it is important to track these expenses. These expenses may be recoverable since this change may mitigate some of the loss and the costs associated with buying additional warmers, containers and the cost of the delivery drivers may all be reasonable and recoverable. Similarly, the cost to reopen, such as new employee training and additional advertising, may all be considered part of the restoration.

In the event a local, state or the federal government issues an order affecting your normal business operations, the first thing you must do is comply with the government order. The health, safety and welfare of yourself, your employees and the general public must take precedence. Your insurance policy may assist you during this time and provide coverage for the interruption of your business operations and loss of business income. The business income and extra expense coverage form, for example, includes language with regard to ‘Civil Authority’ that provides business income insurance coverage in certain circumstances and will pay for the actual loss of business income sustained caused by action of civil authority that prohibits access to the described premises. Of course, there are other policy provisions and conditions that must be reviewed and analyzed to determine whether coverage exists, and thus consulting one of GlobalPro’s insurance coverage experts is recommended.

In particular business income coverage with regard to Coronavirus disease COVID-19, it is important to note that most policies include a mandatory exclusion for business income coverage designed to preclude coverage for virus-related losses. However, there may still be coverage, since some businesses may have manuscript policies or a business owner policy that includes older forms. Either way, the insurance company may argue that there must be physical damage to property in order to trigger business income coverage. This would be either to the insured’s own covered property or, for purposes of losses on account of action of civil authority, to another’s property. Therefore, it may likely be necessary for policyholders to prove that the presence of Coronavirus disease COVID-19 causes physical loss to the affected premises. Thankfully, in emergency orders signed into effect for COVID-19, experts and the government have substantiated that viruses can cause direct physical damage due to their proclivity to attached to surfaces. Further, one state in particular is considering legislation that speaks directly to Coronavirus disease COVID-19. The State of New Jersey is considering legislation that would force business income coverage insures, despite a “virus” exclusion in their policies, to provide coverage for losses stemming from Coronavirus disease COVID-19.

It is important for restaurant and business owner to carry business income insurance coverage, which is insurance coverage intended to replace lost income in the event business is halted or interrupted. Equally as important is preparing your potential claim. These types of commercial property claims are extremely intricate and complex. Preparing a sophisticated, organized claim file is paramount and experience is vital. For example, if you’re able to get an insurance company to admit to coverage passed many of the obstacles listed above, but you have undervalued the loss, then the effort was all for nothing. This principle applies to any loss, including COVID-19 claims, so it is especially important to plan and properly represent your losses regardless of the cause of the loss.

From business to business, policies vary and its important that you avoid making broad assumptions regarding insurance coverage. Determine the source of the information and guidance. Ultimately, it is highly recommended to have an insurance expert review your policy and coverage form(s). If you carry business income insurance coverage and are interested in a policy analysis to determine whether you have insurance coverage due to an interruption of your business operations resulting from Coronavirus disease COVID-19, protect your interests and retain an insurance expert.