business interruption insurance

Mitigate Economic Damage Sooner Rather Than Later

Business Industry Real Estate

Take A Look At Your Insurance Policies, Contractual Obligations, Be Prepared To Negotiate

By Judith Bachman

Health concerns are paramount amidst the outbreak of coronavirus but business owners are rightly worried about the economic impact they are already feeling.  Business owners should take proactive steps immediately to mitigate potential economic fallout.

These mitigation efforts should begin with a review of (1) insurance policies, (2) contractual rights, and (3) communication and negotiation.

First, business owners should confirm if they have business interruption insurance and then carefully review any such policies for coverage and policy exclusions.

Do You Have Business Interruption Insurance?

judith bachmanAt first look, business interruption insurance might not seem to cover losses related to the coronavirus since coverage usually is limited to interruptions stemming from physical damage such as fire or flood.

However, certain aspects of the coronavirus outbreak might give rise to a covered loss.

Such covered losses might include the business location if it is unusable due to coronavirus contamination.  Both the closure and decontamination costs might be covered under the policy.

If there is a state of emergency or government-directed closure of private businesses, like restaurants, movie theaters, shopping malls, etc., that could fall under a business’s interruption insurance policy.

To help determine if an existing policy might offer some relief from the impacts of the virus, business owners must get a copy of their policy.  In turn, they should read through that policy or have legal counsel do so.

Beyond that, the New York State Department of Financial Services (“DFS”) has set up a web page at and a phone number at  (212) 480-6400 or (518) 474-6600 to field questions related to business interruption insurance and the coronavirus.

And to get more clarity on the issue, NY DFS mandated that all insurers that have issued business interruption insurance policies must, by March 18, 2020, advise the DFS as to what “each policy offers in regard to COVID-19 – both presently and as the situation could develop to change the policyholder’s status.”

The DFS directive requires insurers to address:

  • whether contamination related to a pandemic may constitute “physical damage or loss,”
  • whether a “civil authority prohibiting or impairing the policyholder’s access to its covered property in connection with COVID-19 is sufficient for coverage under the policy”,
  • what type of damage or loss is sufficient for coverage under a “contingent business income” policy or a “supply chain” policy.

This DFS inquiry should be both a framework for a review of a business owner’s policy and a source of information once insurers respond.

If a business owner does have potential coverage under an insurance policy for losses attributable to the outbreak, special attention must be paid to the policy limits, claim procedures, and waiting periods.

Business owners should, with the help of legal counsel, assess their insurance policies to determine if they can make a claim for loss related to coronavirus. If terms in the policy are broad enough, businesses should pursue coverage and carefully follow the claims process.

In addition to insurance coverage, businesses may also find relief from the impacts of the virus in some of their existing contracts and other legal principles.

Are You Covered Under The Force Majeure Clause?

Most contracts contain a ‘force majeure’ clause – – this clause is an exception to the fulfillment of obligations under a contract in the face of circumstances out of the parties’ control, e.g., war, labor disputes, etc.

Whether a ‘force majeure’ clause would apply to the coronavirus pandemic turns on the precise language of the clause.

If the clause includes terms such as national, state or local emergency declarations, public health crises, epidemics, or quarantines, that ‘force majeure’ clause might excuse performance.

However, New York courts narrowly interpret ‘force majeure’ clauses and reluctantly apply them.  Contracts that contain vague or catchall language such as “acts of God …and all similar events” may not be sufficient to excuse contract performance.

To determine whether a particular ‘force majeure’ clause might excuse performance, business owners should review their contracts and consult with legal counsel.

Additionally, business owners should explore with their counsel other principles, e.g., doctrines of frustration of purpose, commercial impracticability or impossibility, or the Uniform Commercial Code, which might affect their contractual obligations.

Even if a business owner has no redress from either insurance coverage or contract principles, all business owners should begin to have frank discussions with their counterparties – – landlords and tenants, suppliers, buyers, and vendors.

In these discussions, business owners should try to negotiate changed terms to blunt the financial impact of the economic crisis.  Whether that means delayed payments or shipments, cancelling transactions, or otherwise, these conversations are a critical avenue for relief.

And business owners can be aggressive in these negotiations since both parties are interdependent.  After all, if the business owner cannot manage through the crisis, their counterparts are going to feel the secondary effects of their failure (like defaulted leases, missed payments, and breached contracts).

Judith Bachman is the founder and principal of The Bachman Law Firm in New City. 845-639-3210