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Keeping Things Going: What to Do When Carriers Deny Business Income Claims

If this past year has shown us anything, it may be that business income is not always guaranteed. Whether it fluctuates throughout the year through normal activities or something occurs which causes a short- or long-term change in income, businesses must be able to adjust to new situations and manage the risk that things could change again. One of the ways that can be done is through business income policies (sometimes called business interruption insurance). For some businesses, this type of insurance is essential to keep things going.

Restaurants are a prime example of this: They have a high turnover, a lot of part-time employees who may have to quit if they cannot get paid, and rent payments that are due. That isn’t even mentioning their narrow profit margins available for paying bills.

There are three main aspects to business income coverage:

· Business income policies themselves

· Additional coverage for civil authority

· Dependent property coverage

Here is a basic rundown of the policies. Business income losses stemming from the suspension of operations during a “period of restoration” will be reimbursed by the policy. Three things can trigger this: the suspension of operations due to regulatory authorities (local, state, or federal) or a handful of other reasons, direct physical loss or damage, and the covered cause of loss.

The pandemic has changed a lot of things, but it has not changed the wording of how business income policies work. The very basic tests fail. A virus is not considered to be property damage, and there is already a pollution exclusion in the policies which include biological contaminants (such as viruses and bacteria).

A further issue compounds this problem. There is a 72-hour deductible (waiting period) on most policies. Thus, there needs to be qualifying damage for three days or longer to qualify as a loss. Surfaces can be disinfected in one day, the virus does not live on surfaces for more than three days, and it only survives in the air for about four hours. Each new contamination is a new event and meets a new waiting period.

Denials can come from a slew of reasons: Is the claim related to people, or is the claim related to property? Is the issue about property damage or biological in nature, being a virus? With regard to the latter, commercial property policies will cover property, but they will not cover biological issues. These are just a couple of the many ways to view the pandemic from a risk management perspective.

The bottom line is that the issue is complex, and carriers have had to rapidly adapt to address all the issues that have developed over the past year, directly and indirectly, as a result of the pandemic. They have had to deal with the difficulties of issuing denials for business income loss originating with the virus, and the public and civil reaction to it.

Finally, without bringing up too many bad memories (or current miseries), it is important to reiterate that businesses suffering closures due to the pandemic are not covered under business interruption policies. There are a slew of reasons for this—most of which are somewhat technical in nature and come down to the exact wording of the policies—but suffice it to say a situation like the pandemic was never meant to be covered by this type of insurance. It is a topic that should be discussed with your insurance professional firsthand.

For more information about business income insurance and how it can help your business stay in operation, contact Wayne Nesbit at 952-746-4312 or or visit online at

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