In the wake of COVID-19, a new economic climate has emerged. As we’ve seen a sharp decrease in consumer spending on non-essential goods, many industries are finding themselves in a season of uncertainty.1 Recently passed legislation has allocated over $600 billion to keep these small businesses and their employees afloat with programs such as the Paycheck Protection Program.2

Yet businesses still need their losses covered as much as possible, and navigating insurance policies to find a solution is difficult. Below we discuss what type of insurance coverage might help businesses during the current pandemic.

Covering Your Losses: Business Interruption Coverage

If your business has lost revenue from the pandemic, you’ll want to focus on business interruption insurance. First and foremost, acquire a comprehensive copy of your insurance policy; your policy may or may not cover business interruption losses, and even then, the details widely differ. To help understand the types of insurance coverage available to businesses, we spoke with Rick Huynh, State Farm insurance agent and former small business owner/restaurateur.

What Is Business Interruption Insurance?

General business interruption insurance is an add-on to property insurance, covering losses if a business is unable to use its insured property normally. Huynh says this coverage is triggered by a “cause of loss,” which should be described in your insurance policy. Typically, this cause of loss must be direct physical damage to your property – such as fire or water damage.3 There are also various sub-types of business interruption insurance that you should look for:

  • Business income coverage: This covers a consistent loss of income as a result of business closure.
  • Contingent business interruption coverage:This is the same premise as business interruption coverage, but applied to your entire supply chain. For instance, if your supplier’s institution closes due to damage, you would qualify for contingent coverage.
  • Civil authority coverage: This covers losses caused by forced business closure by civil authority. In this case, this is most applicable to state legislatures closing non-essential businesses. This policy also usually requires some form of physical damage.4

Huynh related that a client, a retail business in downtown San Jose, suffered damage from vandalism. Fortunately, this business owner had the right coverage in force that covered both damage to and loss of the business’ property and merchandise, as well as loss of income while the business remained closed. “Without the insurance they were facing loss of income and loss of their entire inventory,” Huynh said. “Having the right coverage in place is incredibly important because it protects a business owner’s livelihood.”

Does Business Interruption Insurance Cover COVID-19 Losses?

Unfortunately, many insurers are hesitant to apply business interruption coverage to coronavirus-related losses. These rejections occur on the grounds that a pandemic is not considered physical damage. Huynh adds, “Government ordinances or restrictions, virus outbreaks, are all usually named exclusions in business interruption policies.”

Still, this doesn’t mean that you shouldn’t file a claim. Some state legislatures have introduced bills that would require insurers to pay business interruption claims related to COVID-19, even if there are virus exclusions.5 See what your insurance policy qualifies as cause of loss, check local legislation and talk to your insurer.

Policies That Protect You From More Losses

Liability insurance shields businesses from potential losses due to claims of injury from third parties. It’s unlikely that being sued for liability will be a large concern for most small businesses, considering the difficulty of tracking virus contraction. Still, liability lawsuits are a legitimate fear.

The Importance of Liability Insurance

Commercial general liability insurance protects businesses from losses responding to injury or endangerment. Regarding COVID-19, this could manifest in lawsuits accusing employers of not taking enough precautions or exposing employees to the virus.

“Typically, policies will not cover illnesses, pandemics, viruses, contaminations or civil issues,” says Mr. Huynh. “But that is not going to stop people from suing. Insurance claims departments will have to determine if the insurer will defend, cover or pay for any judgments. This is a gray issue.”

Insurance clauses that do include outbreaks are most commonly seen in the events and hospitality industry, where they’re most likely to occur. Less applicable, although still worthwhile to note, is professional liability insurance – this protects from losses as a result of accusations of malpractice or negligence.

This is a trying time for businesses. There is not a single industry untouched by the changes wrought from COVID-19. If you’re a business owner seeking relief, try to leverage the insurance policies you have in place. “The best thing you can do right now is to review your coverage and understand your coverage,” says Huynh. “Work with your insurance agent or broker; you might either raise or lower coverage depending on your current situation.”

Have questions about your policy coverage? Reach out to Rick Huynh: or contact him at (408)819-3810.