Since the COVID-19 pandemic started, and especially after state governments issued stay-at-home orders, small businesses ranging from restaurants to retailers to manufacturers have suffered. Customers can’t shop and employees can’t go to work. Many small businesses hoped that they would be financially protected by business interruption insurance policies, but court rulings across the country have made it clear that these policies do not cover losses stemming from COVID-19-related business interruption.
In two (2) court cases, Social Life Magazine vs. Sentinel Insurance Co. Ltd. and Gavrilides Management Co. et al. vs. Michigan Insurance Co., the judges made the same ruling: there is no physical loss or damage resulting from the virus, which is what business interruption insurance covers. Plaintiffs in both cases cited government-issued restrictions keeping customers and employees away as physical damage to their businesses. Both judges did not agree, with the judge in the Gavrilides case stating that for the policy to be in force, there must be “something that physically alters the integrity of the property.” The coronavirus does not meet that requirement.
A spokesman for Sentinel Insurance, which is a subsidiary of The Hartford Financial Services Group, noted that it is unfortunate that viruses are not covered by business interruption insurance. While this may seem contradictory to the insurers immediate interests in the court case, as a result of the lack of coverage, insurers could lose many of their business insurance customers if they are unable to survive through the pandemic. Had virus-related coverage been included in policies, insurers would have collected premiums in anticipation of such claims. Going forward, it seems likely that there will be a larger market for non-physical business interruption insurance.
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