Insurance Companies to Small Businesses: Sorry, We Don’t Cover Viruses

“Running a business can be difficult without the right business insurance. One coverage most businesses need is business interruption insurance, also known as business income insurance. It can help replace any income your business loses if you can’t open for a time after a covered loss.” 

Those words appear on a major insurance company’s website, as it, like insurers across the country, tries to entice small-business owners to plunk down anywhere from a few hundred to a few thousand dollars a month for business interruption coverage that promises to help “pay bills, replace lost income, and cover payroll when a covered event forces your business to close temporarily.” 

Well, if ever we were in a situation where that’s the case, it’s now. But now that the owners finally need this coverage to keep their small businesses afloat, insurance companies are telling them they’re not covered for COVID-19 related closures. 

At one time, before I saw the light, I was a lawyer in a big law firm where we represented large insurance companies. As I saw firsthand, everyone thinks they have a great insurance policy—until they make a claim. And then it becomes like the classic scene in Willie Wonka & the Chocolate Factory where Wonka tells Charlie’s grandfather that Charlie doesn’t get the promised chocolate factory because he violated a little-known term of the contract: “Under section 37B of the contract… ‘I, the undersigned, shall forfeit all rights, privileges, and licenses herein and herein contained, et cetera, et cetera…’” ending with Wonka telling them, “You lose! Good day, sir!”

“You lose! Good day, sir!” is exactly what insurance companies are now telling small-business owners based on an exclusion in the policy called—wait for it—the “Exclusion for Loss Due to Virus or Bacteria.” Yep, tucked into just about every commercial business-insurance policy since 2006 is language that states “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness, or disease.” 

In fact, as insurance lawyers have noted, this exclusion was inserted by insurance companies to prevent coverage for the very type of shutdowns we are seeing now caused by the COVID-19 outbreak. You think casinos rig the odds in their favor? You haven’t seen anything until you’ve read the list of exclusions in a commercial insurance policy. 

True, everyone should read all the fine print before signing an insurance contract. But few small-business owners will, and even if they do, it’s unlikely all will understand the nuances of what is covered and what is not. And who, before now, would think of asking an insurance broker: “In the case of worldwide pandemic caused by a coronavirus outbreak, am I covered?!” 

Instead, people considering insurance more likely will look at an insurance company’s website for guidance about what is not covered, such as at the bottom of one company’s page that states, “Closures caused by flood, earthquakes or broken glass typically are not covered in a business interruption policy.” (No other exclusions of coverage are noted.)

But now people like Norm, a small-business owner from Florida (and a listener to my SiriusXM radio show), who forwarded me the denial of coverage letter from his insurance agent, are told no coverage “due to loss by virus or bacteria.” In Louisiana, the owner of several truck stops, who is now losing $30, 000 to $40,000 a month, is also out of luck due to that same exclusion, and the list of small-business owners denied coverage goes on and on. 

This situation did get the attention of some elected officials. In the House, a bipartisan group of 18 members of Congress sent a letter last week to four of the largest insurance trade organizations urging them to provide business interruption coverage despite the “virus” exclusion. However, the response by the insurers was a resounding “no”: “Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”  

The stimulus bill expected to be signed into law shortly does provide billions in loans for small-business owners, but that’s far different than getting a check from your insurance company to cover a loss. Instead, now small-business owners will be required to apply to the government and comply with any terms imposed (it’s not clear yet what those will be) as they compete with hundreds of thousands of others business owners for limited resources. Plus a federal government loan has to be repaid, while proceeds from your insurer do not. 

I discussed this issue on my show Wednesday with Rep. Mikie Sherrill (D-NJ), who explained that Congress is monitoring the issue and specific aid for business interruptions may be included in a future stimulus bill. In fact, it’s such a growing issue in the Garden State that the New Jersey State Assembly is considering a bill to compel insurers to cover small business for business interruptions caused by COVID-19. The bill was recently pulled from a full vote over concerns about the legality of rewriting an insurance policy after it has been entered into by the parties.  

So what happens if you are a small-business owner and you’re denied coverage for the business interruptions caused by the virus? Simple, you can, as the insurance company hopes, just move on. Or you can hire an attorney, at your own cost—it may be pricey, given its commercial litigation—and sue the insurance company.

Last week, a Louisiana business sued its insurance company over this very issue, reportedly marking the first such lawsuit in the nation. Expect more lawsuits. A lot more. But while these cases make their way through the courts, expect insurance companies to keep doing what they’ve been doing all along: Collecting premiums and denying claims.