FAQ on business interruption insurance and other issues affecting California small businesses
The California Department of Insurance recognizes that COVID-19 is affecting many businesses throughout the state. With many businesses experiencing severe interruption, the Department is issuing guidance for businesses regarding insurance coverage and particularly about Business Interruption Insurance coverage.
Business Interruption Insurance is optional coverage that may be purchased as part of a comprehensive multi-peril commercial policy. Business interruption insurance coverage typically lists or describes the types of perils or causes of loss it covers. Perils or causes of loss that are not listed on, or not described in, the policy are typically not covered. Business interruption coverage typically can only be triggered if you have direct physical property loss that leads to the business interruption – for example, a fire or flood damaging your property that has caused you to suspend your business activities.
If you want to know if you have business interruption coverage and if it covers this situation, please contact your agent, broker or insurance company. If you are not satisfied with the answers you get or have other questions, you may contact us at (800) 927-4357 or through our website at: www.insurance.ca.gov.
How will I know if I have business interruption insurance?
Not all commercial multi-peril policies include business interruption insurance. We strongly encourage businesses to review their policies, including policy exclusions, coverage limits, and applicable deductibles, and contact their insurance companies to determine what their policies cover as each insurance policy is different and the coverage varies.
Will my insurance cover loss of income because of a business interruption due to COVID-19?
You will need to consult your policy to determine what may be covered. Business interruption insurance policies typically cover loss of income, rental value, or both. In general, business interruption insurance policies require a direct physical loss or damage to a property caused by a covered peril (i.e. fire, water damage, etc.) in order for business interruption coverage to apply. Most commercial policies have exclusions for loss due to contamination by virus and similar perils, such as pandemics.
How do I know if my policy excludes COVID-19?
Most commercial policies have exclusions for loss due to contamination by virus and similar perils. You should check your policy for a specific exclusion for viral/bacterial contamination or an incident triggered by an epidemic/pandemic, which means insurance would not cover losses related to COVID-19. Also, any claim would still need to be related to your property damage for coverage to be triggered. Conversely, check to see if you have a special endorsement for virus and pandemic although very few, if any, policies are known to have these.
What if my business is closed due to a voluntary or mandatory government order?
While you should consult your policy, in general, coverage resulting from the actions of a civil authority also requires physical damage to the insured premises caused by a covered peril. If this is the case, a government ordered shutdown due to a pandemic may likely not be fully sufficient to trigger business interruption insurance coverage in the absence of physical damage to the insured property caused by a covered peril – whether that order is voluntary or mandatory.
Can I buy insurance now to cover business interruption losses due to COVID-19?
While some companies may currently market insurance that covers business interruption losses related to a pandemic, if this type of coverage is purchased today, it will not apply to the current coronavirus situation. The expression that “you cannot buy fire insurance for a currently burning house” applies in other active emergency situations as well.
What is the Department doing to further help businesses affected by COVID-19?
The coronavirus crisis is affecting millions of business owners and workers, and Insurance Commissioner Ricardo Lara and the Department have been working with federal authorities and state and local leaders to help businesses who are losing income due to government actions and business closures as a result of the COVID-19 pandemic.
Commissioner Lara sent a letter to Speaker Nancy Pelosi and California’s Congressional delegation alerting them to the scale of the business interruption crisis and calling on them to take immediate action now to protect these businesses and their workers.
In order to inform state policymakers working to protect small businesses, the Department of Insurance is conducting a mandatory request to insurance companies for data about the number and type of small businesses with business interruption coverage and the scale of both covered and uninsured business losses.
What help is available to businesses through the federal stimulus package passed by Congress?
Most businesses and non-profits with fewer than 500 employees will be able to apply for Small Business Administration 7(a) loans. Self-employed workers will also be able to apply for loans, as will workers employed by ride-sharing apps. The federal stimulus package was signed into law on March 27, and businesses will need to contact banks, credit unions and other lenders to apply for the loans. For more information please visit the Small Business Administration website.
Workers’ Compensation Insurance and Other Worker Protections
Does workers’ compensation insurance apply to COVID-19?
Workers’ compensation insurance could apply in cases where a person contracted the illness through workplace exposure, such as health care workers.
California Governor Gavin Newsom’s March 12 Executive Order states that “if workers are unable to do their usual job because they were exposed to and contracted COVID-19 during the regular course of their work, they may be eligible for workers’ compensation benefits.”
Working remotely does not suspend the application of various employment laws, including wage and hour requirements, workplace safety obligations, and workers’ compensation coverage.
The California Department of Industrial Relations (DIR) and the California Labor & Workforce Development Agency have posted information regarding COVID-19 on their websites, including a chart of available benefits, FAQs, and information regarding available benefits such as disability insurance, paid family leave, and unemployment insurance seen here:
- https://www.dir.ca.gov/dlse/2019-Novel-Coronavirus.htm (under Labor Law)
What help is there for employees affected by COVID-19 closures?
Governor Newsom’s March 12 Executive Order spelled out several steps that employees can take if they lose their jobs or are unable to work due to COVID-19. These include disability and unemployment insurance, paid family leave for caregivers, and workers’ compensation if you were exposed to and contracted COVID-19 during the regular course of your work. The Governor waived the one-week waiting period for employees who are unemployed or become disabled as a result of COVID-19. Learn more here:
Can I contact the Department of Insurance if I have questions about my policy?
Yes -- if policyholders have questions or issues with their insurance policy or their insurance company, the Department of Insurance encourages them to contact us at (800) 927-4357 or through our website, www.insurance.ca.gov.