Business Interruption Claims in the Wake of the Covid-19 Virus Outbreak

During the Covid-19 outbreak, laws and legal issues are arising that will have impacts on businesses, employees, employers and the real estate community for an next several months and potentially longer. With the current response of government instituting shelter in place rules there will be impacts on business. Today we look at the legal issues surrounding business interruption insurance and potential issues that may be faced as a result of the current Covid-19 outbreak.

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Business Interruption Claims in the Wake of the Covid-19
Virus Outbreak
By: Robert J. Enos, Esq.

bpe lawyersIn light of business closures since the COVID-19 outbreak, business owners will be confronted with profit loss and their employees lost wages. One question is whether there is any relief under “Business Interruption Insurance.”

Business interruption insurance makes up the difference between normal business income and non-existent income during and immediately after a forced shutdown. To succeed on such a claim, the insured business must prove physical damage to covered property, caused by a covered peril during the policy period, which resulted in an actual loss of income due to the necessary suspension of operations.

Under California law, a “necessary suspension” means a cessation of operations, not a slowdown or reduction in operations. This factor may cause significant heartache for businesses that are “recommended” to furlough non-essential employees, yet not required under the law to do so. Insurance will look at whether the virus concern forced the business to close or was it a matter of discretion. Unlike a mandatory evacuation due to wildfire, a governmental statement that businesses “should” close might not provide the required element to trigger coverage.

If the claim is accepted calculating how much a business can recover in insurance benefits after a loss can be particularly difficult when economic conditions change following a catastrophe. For instance, an insured restaurant may have enjoyed a tremendous demand for the restaurant’s services following a disaster had the restaurant been operational. On the flip side, an insured may have experienced no demand for its services following a pandemic or other disaster, even if its doors were open. Therefore, it is critically important to examine applicable insurance policy language when valuing a business interruption claim.

Business interruption or loss of income will be determined based on the likely net income of the business if no physical loss or damage had occurred, but not including any net income that would likely have been earned as a result of an increase in the volume of the business due to favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses.

While only a handful of courts have addressed the effect of changed economic conditions on business interruption recovery, the majority also consider the policyholder’s historical financial data. The insurer will want to know operating expenses, including payroll expenses, necessary to resume “operation” with the same quality of service that existed just before the direct physical loss or damage. Other relevant sources of information include financial records and accounting procedures, bills, invoices and other vouchers, and deeds, liens or contracts.

On the other end of the spectrum, business interruption policies treat the termination of the period of restoration in several different ways. Often, an insurance policy limits the recovery to the time required to repair or rebuild the damaged property with reasonable speed. Under California law, what constitutes a reasonable period to carry out the necessary repairs and resume business for purposes of the “period of restoration” is a question for the jury.

With the current spate of shelter orders and guidelines altering the course of business services, issues are going to arise related to the ability for a business to continue its operation. If your business is suffering economic losses as a result of these governmental decisions, you should be carefully reviewing your insurance policies and documenting your financial harm to prepare a possible insurance claim.

The attorneys at BPE Law have been assisting business owners for more than 20 years in the business needs, including advising on insurance coverage issues. If you have a question about your potential recourse or remedies, seek competent legal counsel to assist you.


The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in probate, business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at Our flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.