Analyzing Business Interruption Insurance Clauses – A Primer For New York Business Owners

Virtually every company in New York State has been impacted by Governor Andrew Cuomo’s Executive Orders requiring all nonessential New York workers to stay home and by the COVID-19 outbreak more generally.

Many of those same New York companies also have business interruption insurance (also known as business income insurance). This type of insurance is typically found within or as a supplement to the insured’s property and casualty insurance policy. However, the coverage scope for business interruption of each policy can vary in certain critical ways and can have numerous wrinkles, any of which may expand, limit, or exclude potential coverage for a company’s loss of business relating to the COVID-19 outbreak.

Physical Loss or Damage Caused by a Covered Cause of Loss

The standard “business interruption” coverage comes into play where (1) there is a suspension or reduction of operations, (2) caused by physical loss or physical damage, and (3) resulting from a “covered cause of loss” or “peril”. A typical example is that, after a fire at the insured’s premises, operations of the business are suspended and the insurer will provide coverage for the loss of business and additional expense incurred while the insured is remediating the damage caused by the fire.

Whether a virus such as COVID-19 is a “covered cause of loss” (or “peril”) that causes or results in property damage is undecided (but is already the subject of at least one lawsuit in Illinois).

However, based on the policy language, business interruption coverage could be implicated where, for example, several employees at a company’s workplace test positive for COVID-19 (all of whom were physically in the office during the incubation period) and the company was required to shut down operations to remediate the property with a third-party specialist vendor as a result of the presence of this dangerous contaminant at the workplace (thus establishing the requirement of property damage).

In the absence of these types of facts, business interruption coverage based on the existence of COVID-19 becomes significantly more questionable.

Loss Caused by Civil Authority Order

Many business interruption coverage sections contain “civil authority” provisions, which will come into play if the insured can demonstrate that (1) an order of a civil authority was issued (i.e., Governor Cuomo’s Executive Orders), (2) the order prohibits access to the covered business, and (3) there was a covered cause of loss to property in the immediate area of the covered business (i.e., another nearby business suffered damages from infected COVID-19 employees).

Some policies may require that the civil authority order be issued to directly address the actual property damage to the nearby property, while others are not so restricting.

Explicit Inclusions or Exclusions and All-Risk Policies

An exclusion for viruses, epidemics, pandemics, communicable disease or the like will potentially defeat a claim for coverage.

Some policies, however, may contain endorsements that provide for explicit coverage for, among other things, viruses. These policies will clearly be the most likely to result in successful insurance claims, assuming physical damage or loss to property can be established.

There are also “all-risk” (also known as Special Cause of Loss Form) policies (which may have the exclusions discussed above), which may also prove useful in pursuing a COVID-19 claim. Under these types of policies, in the absence of an exclusion for losses arising from viruses, pandemics, communicable disease or the like, and assuming that the insured can otherwise sufficiently establish some type of physical damage or loss to its property (or neighboring properties if a civil authority order provision applies), the all-risk policy may cover losses caused by viruses, such as COVID-19.

Potential Help from Albany

New York lawmakers are attempting to retroactively expand business interruption claims caused by COVID-19 to allow such claims to proceed in instances where the policies exclude viruses or otherwise would not provide coverage. In a bill proposed in the New York State Assembly on March 27, 2020, “every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, shall be construed to include among the covered perils under that policy, coverage for business interruption during a period of a declared state of emergency due to the coronavirus disease 2019 (COVID-19) pandemic.” The New York bill would apply to policies in force by March 7, 2020 and issued to businesses with fewer than 100 full-time employees as of that date. However, it is unclear what the likelihood is that this bill will be passed. Many commentators are already predicting vigorous challenges by insurers on constitutional grounds.

Potential Help from the Federal Government

Various insurance trade groups and business organizations, including the property/casualty insurance industry, are urging the Federal government to support the “COVID-19 Business and Employee Continuity and Recovery Fund” (which would be patterned after the Federal assistance fund related to help recovery after 9/11). The Fund would be “funded by the federal government and under the authority of a special federal administrator with the ability to enter into contracts with interested businesses to administer the Recovery Fund and facilitate the distribution of federal funds and liquidity to impacted businesses and their employees,” according to a letter submitted to President Trump, Secretary Mnuchin and Congressional leaders.

The insurance industry is apparently supporting the creation of this Fund in an effort to avoid any legislative proposals that would force insurers to pay otherwise uncovered business interruption losses due to COVID-19 (like the bill in the New York State Assembly).

Advice from Leading Insurance Experts

The most important, and first step, is to carefully review your insurance contract with your insurance broker and legal counsel. Industry expert, Fitzgerald Ventura, President of InterCity Agency, Inc., a leading New York City metro area commercial insurance brokerage, offers the following additional advice:

1. Start by reviewing the property and business interruption coverage parts of the policy to determine if “virus” is an excluded peril. Read endorsements too as sometimes the peril is excluded in the main coverage form, but then included by a superseding endorsement/amendment.

2. Take a broad view as to what may be considered physical damage. Property that is contaminated by the virus must be remediated before it can be put back to its intended use. Some companies have spent tens of thousands of dollars doing specialized cleanings. This type of remediation work may constitute physical damage under the policy.

3. Do not think about your loss in an entirely singular or sequential time period. The physical damage may have occurred during a specific period, or multiple periods, of contamination, necessitating recurring remediation. The civil authority order prohibiting access may occur at another distinct period. Loss of revenue may occur while the business operations are impeded and future revenue may be lost if advance orders (i.e., for the summer) cannot be filled during the period of closure. Each of these events may represent a different coverage trigger under the policy, even though the events do no occur sequentially.

4. Where applicable, look at pollution liability policies that provide first party coverage. Commercial property owners, developers, contractors and many other businesses often have pollution remediation policies that may provide property damage and business interruption coverage for claims arising from viruses.

5. Seek advice from your insurance broker and legal counsel to determine when and if a claim should be submitted. Insurance companies have a right to promptly assess the loss. Timing matters. The earlier the insurance carrier is notified and invited to participate in the remediation process, the less likely an insured will accidentally prejudice its rights under the policy.


As this article is being published, the New York State Legislature and/or Congress of the United States will likely be proposing additional mechanisms to address COVID-19-related business losses. Insureds should carefully watch this developing legislation to keep abreast of the latest developments in this area of the law.