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Business Interruption Coverage From a Pandemic

You don’t have to look far to see how badly COVID-19 and the prolonged quarantine have decimated businesses. With fewer customers and clients comes drastic revenue losses - forcing many to close up shop for good.


Making matters worse is the fact that most businesses have nowhere to turn to stop the bleeding, as standard business insurance policies have declined nearly every business interruption claim filed by frantic business owners.


However, most people are unaware that a viable alternative option actually exists.


Standard Business Insurance Policy


The standard business insurance policy has a business interruption coverage clause that will respond when business is interrupted due to a covered claim.


A classic example is when a fire causes a business to shut down. While repairs are being made, the business interruption clause is triggered, which prompts the insurer to compensate for income losses incurred during this timeframe. This is dubbed the “Period of Restoration.” Afterwards, once the repairs are finished and the business reopens, these payments are finished. 


A fire is also a textbook example of a claim that causes a “Direct Physical Loss” to a business, since it literally caused the business to shut down and undergo repairs. In the cannabis industry, this is similar to Crop Insurance, which covers growers if certain external conditions - like a fire, lightning, wind, hail, theft, and sprinkler malfunctions - compromise or halt cultivation.


The standard business insurance policy also has a Civil Authority Clause, which kicks in if your business practice is forced to halt due to a direct Government order. In turn, business interruption coverage commences 72 hours after the order, and continues for 4 consecutive weeks. 


In this case, a “Direct Physical Loss” doesn’t necessarily have to occur in order to trigger the business interruption coverage clause. For example, a Government order in the wake of the September 11th attacks closed off lower Manhattan - triggering the Civil Authority clause and subsequent payments.


Insurance Coverage During the Pandemic


To the dismay of many business owners today, standard business policies are NOT responding to any loss of income claims filed due to the pandemic. 


This is because the virus is not technically considered a “Direct Physical Loss,” since the quarantine order and associated restrictions were implemented not because of a “direct physical loss,” but due to the threat to human life - which is not listed as a covered claim.


A common option for insureds whose businesses have incurred massive pandemic-related losses and damages is to take their carriers to court. In addition, federal and state legislation have been proposed that would force carriers to pay business interruption claims. However, this has not yet been voted on, and the pushback from insurers will certainly be heavy.


The Captive Insurance Company Solution


With financial losses mounting each day and no help in sight, it appears that business owners affected by this pandemic are stuck between a rock and a hard place. 


Under the current standard business policies, it appears highly unlikely that insurers will pay the claims people are desperately looking for. Meanwhile, the future renewal of such policies will likely come along with increases in premiums, as well as further coverage restrictions.  


However, as noted earlier, another option exists that people can take full advantage of!


The Captive Insurance Company Solution


Under this option, manuscript policy forms not only could have, they actually would have responded to any if the aforementioned loss of income and/or rent claims. On top of that, it also comes with significant financial and tax benefits.


If you’d like to learn more about this amazing opportunity that could turn your business around, reach out to us and learn more!

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