What business interruption insurance normally covers
Business interruption (BI), also called business income coverage, replaces income you lose when your operations are disrupted. According to the Insurance Information Institute (Triple-I), it typically pays lost net income based on your financial records plus continuing expenses such as rent or lease payments, loan payments, taxes and payroll. Extra expense coverage pays reasonable costs to keep operating, such as a temporary location. Triple-I notes there is typically a 48 to 72-hour waiting period before coverage begins.
The crucial point is that BI is usually attached to a commercial property policy or a business owner's policy, and it responds only when the interruption is caused by a covered peril, such as a fire, that causes direct physical loss or damage. If flood is not covered by your property policy, for example, Triple-I explains that a business closed by a flood cannot claim BI for that closure.
Why COVID-19 claims were mostly denied in the US
When lockdowns began in 2020, thousands of businesses filed BI claims. Most were denied for two main reasons:
- No direct physical loss or damage. Insurers argued, and most courts agreed, that a closure order or the presence of a virus did not physically alter property.
- The virus exclusion. In a circular filed on July 6, 2006 (LI-CF-2006-175), Insurance Services Office (ISO) introduced endorsement CP 01 40 07 06, "Exclusion of Loss Due to Virus or Bacteria." It states there is no coverage for loss or damage caused by any virus, bacterium or other microorganism capable of causing illness or disease. Many US commercial property policies carried this or similar wording.
Civil authority coverage, which pays when a government order blocks access to your premises, did not help most claimants either. Triple-I notes it generally requires physical damage to nearby property and typically lasts no more than two consecutive weeks. Today Triple-I states plainly that BI does not cover pandemics, viruses or communicable diseases such as COVID-19.
What US courts decided
The COVID Coverage Litigation Tracker at the University of Pennsylvania followed these cases. As reported by Carrier Management in August 2021, insurers had won more than 90 percent of federal court decisions issued to that point, and about 70 percent of state court decisions if dismissals without prejudice are counted as insurer wins. Results varied by state and by policy wording, but the overall direction was clear: standard property-based BI was not designed for pandemic losses.
The UK took a different path
In the United Kingdom, the Financial Conduct Authority brought a test case on common BI wordings. On January 15, 2021 the UK Supreme Court gave judgment in Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1 and dismissed the insurers' appeals. Commentary from Brick Court Chambers notes that the case directly concerned 21 lead policy wordings, was intended to resolve issues for about 700 similar policies, and could affect about 370,000 policyholders, according to FCA estimates. The key difference was that many UK policies contained non-damage "disease" and "prevention of access" clauses, which the court interpreted in policyholders' favor. The lesson for international businesses: the specific wording, not the label "business interruption," decides coverage.
How to review your policy now
| Policy feature | Question to ask |
|---|---|
| Trigger | Does BI require direct physical loss or damage, or are there non-damage extensions? |
| Virus or communicable disease exclusion | Is it attached, and does it apply to all coverages including civil authority? |
| Civil authority and ingress/egress | What triggers them, and for how long do they pay? |
| Contingent BI | Are your key suppliers and customers covered if their premises are damaged? |
| Waiting period and limits | How many hours before cover starts, and how long is the indemnity period? |
Options for pandemic-type risks
- Event cancellation policies for conferences and events, where communicable disease cover may be available at an additional premium and with strict terms.
- Parametric covers, which pay a pre-agreed amount when a defined index or trigger is met, without a traditional loss adjustment.
- Contingent BI and supply-chain policies for damage-based disruptions at suppliers.
- Financial resilience: cash reserves, credit lines and continuity plans remain essential, because insurance capacity for systemic pandemic risk is limited.
How Polis Re can help
Polis Re helps businesses review BI wordings, identify exclusions and request alternative quotes. Policies are issued by licensed insurers and placed through licensed producers in your state. See our guides to commercial property insurance and policy conditions, or request a quote.