Read Your Business Interruption Policies Carefully

Business interruption insurance is intended to, as the name implies, pay you for losses that your business incurs as a result of something out of your control. But like many insurance policies, what is and isn’t covered, is often a matter of the exact language of the insurance policy.

Restaurant Claims Business Interruption

This is exactly the lesson of a recent case, involving a restaurant in Miami. The restaurant, like many, had to effectively shut down operations in 2020 after the COVID lockdowns. Of course, the business lost significant business, so it made a business interruption insurance claim.

The good news for the restaurant was that there was no specific exclusion for pandemics, viruses, or government shutdowns in the insurance policy. The bad news is that the language of the policy only provided coverage for what was called a “direct physical loss or damage to property.” The question for the court to decide was whether the pandemic shutdown constituted a direct physical loss.

The insurance company said no—direct physical loss means some type of physical damage to the restaurant, like a flood or wind damage or a car driving through the wall.

But the restaurant said that was too narrow of a reading, and that “damage to property” could be much broader, and that not being able to actually conduct business operations was in fact a “physical loss.” It suggested to the court that the insurance company was reading the policy way too narrow, especially in light of the fact there was no specific virus or shutdown exclusion in the policy.

Court Finds No Ambiguity, so No Coverage

None of the terms that were at issue in the policy, had any specific definitions of them in the policy.

The court said that although there were no definitions to guide the parties, the contract was not ambiguous (which, if it was, would have been to the restaurant’s advantage, as ambiguous insurance policies are interpreted in favor of insurance coverage).

The court found that because the restaurant had not changed at all—rather, the world around it changed—there was no coverage under the narrow language of the insurance policy. The restaurant suffered no alterations, modifications, breakage, or anything that could be physically felt or seen, as the policy required, and thus, the court found there was no insurance coverage available.

Read Your Policies

This is not an uncommon situation. In many business interruption claims, insurance companies will require strict adherence to the terms of the policies.

Unlike homeowner’s property insurance claims, where there are often consumer laws that protect people’s homes or which may regulate what insurance companies can and cannot put into policies, with business insurance, insurance companies can often include, or exclude whatever they want in their business interruption insurance policies.

Contact the Miami property damage insurance attorneys at Velasquez & Associates P.A. today if you have any kind of dispute with your insurance company.

Sources:

casetext.com/case/commodore-inc-v-certain-underwriters-at-lloyds-london

allstate.com/resources/business-insurance/business-interruption-coverage