As we have discussed elsewhere, many businesses feeling the impact of coronavirus have turned to their insurers for “business interruption” coverage. If a business has purchased such coverage, it generally can expect its insurer to provide the income it would have received in the absence of the event which caused the “interruption” to its business. Courts across the country are grappling with the question of whether business interruption policies will cover losses due to the coronavirus. Assuming a business is covered, however – how long must the insurer pay for its losses?
Generally, business interruption coverage will cover lost income due to the impairment or suspension of operations during the “period of restoration.” Although different policies may define the “period of restoration” differently, it is typically a period of time starting at the date of damage to the property and ending on the date when the property is repaired, rebuilt, or replaced with reasonable speed and similar quality. It is easy to see the limits of these time periods in other contexts. In Lightfoot v. Hartford Fire Insurance Company, No. 07-4833, 2010 WL 4909437 (E.D. La. Nov. 24, 2010), for example, the “period of restoration” for a business harmed by Hurricane Katrina ended when its office had been fully repaired and all operations at its temporary office had been shut down. When a tornado caused heavy damage to a furniture store, the period of restoration ended when the store reopened after repair. Gates v. State Automobile Mutual Insurance Company, 196 S.W.3d 761 (Tenn. App. 2005).
But determining when the “period of restoration” ends for a business affected by coronavirus may prove more difficult. As states begin to gradually reopen, businesses may be able to operate at 25% or 50% of their pre-COVID capacities. At what point is the “period of restoration” over, such that their insurer will no longer be required to cover any of their losses?
Insurers will likely argue that any sort of reopening means that the property has been “repaired.” But, as we’ve noted elsewhere, physical damage to a property can occur without complete destruction of a facility, and even businesses that are able to partially reopen may still be damaged or contaminated by the coronavirus. These businesses’ properties cannot be said to have been repaired or replaced. Additionally, businesses may have separate “civil authority” coverage, which covers lost income due to a government order, and may provide a different end date for coverage. Policyholders should examine their policies closely to determine how their insurers define the length of their coverages.