Business interruption insurance policies are governed by contract law and the coverages and exclusions may vary from insurance company to insurance company, as well as from business to business. In other words, commercial insurance policies have unique terms, conditions, and exclusions that are not uniformly applicable to every business. Business interruption coverage is typically triggered under a commercial insurance policy when a covered risk causes direct physical loss or damage to the insured’s or policyholder’s premises resulting in the need to shut down business operations. For example, if a fire damages a business and the business cannot operate during repairs, business interruption coverage could be available subject to the terms and limits of the business owner’s particular policy.
A business interruption insurance policy should clearly list or describe the types of events, commonly known as perils, that it covers. Perils that are not listed or described in the policy, or that are specifically excluded in the policy, are generally not covered. These excluded perils are typical risks that are too great to be underwritten at an affordable price. For example, insurance policies generally contain exclusions for loss or damage caused by war, nuclear accident and radiation. The potential loss costs from such perils are so great that providing coverage would jeopardize the financial solvency of insurers and many businesses could not afford the premium costs to cover such catastrophic events even if they were covered perils. Global pandemics like COVID-19 usually fall into this category of risks or perils that are not covered. Business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19, and therefore usually include exclusions for that risk.
Some commercial policies may provide business interruption coverage when a business is shut down due to an order by a governmental or civil authority, like the Governor’s recent executive orders. However, for coverage to apply, most insurance policies still require a direct physical loss from a covered peril as the underlying cause of the business shuts down or closure. Civil authority coverage typically comes with a separate sub-limit and/or time limit. Nevertheless, insurance policies can be different, and it is important for each insured or policyholder to review their insurance policy coverages, exclusions, coverage limits, and applicable deductibles. Some insureds or policyholders may have purchased additional coverage options, or endorsements, that could be applicable. It is imperative for an insured or policyholder to discuss insurance policy coverages directly with their insurance professionals, including agents, brokers or employees of the insurance company.
This information is an excerpt from the West Virginia Department of Insurance bulletin.