As COVID-19 ravages our country and the world, perhaps no sector in the U.S. has suffered more than the restaurant industry. Government orders have effectively closed restaurants for all purposes except, in many states, pickup or delivery. While there is talk of “opening up” the economy, and while some states are taking measures to begin doing so, it’s unclear whether the public-at-large is ready to dine out anytime soon.

For some restaurants, help may be on the way in the form of business interruption insurance. This insurance is typically included in a restaurant’s property insurance package, and kicks in when there has been physical loss or damage to property.

Let’s say a fire forces an owner to close her restaurant for six months while she repairs the building and replace everything inside. Her property coverage can, of course, pay to repair or replace items lost in the fire. Business interruption coverage will then pay the net income she would have earned absent the fire, plus costs that continue after the loss, including payroll. Coverage kicks in after an initial “waiting period,” typically 24- to 72-hours after the loss, and continues until the owner is reasonably able to repair or replace the lost or damaged property and resume business, and sometimes after that. Most policies also cover the extra costs an owner might incur to keep her business going in the meantime.

Basic business interruption insurance covers net income loss and extra expenses resulting from loss or damage to property at an insured premises. But some extra coverages can also protect owners from income loss that results from loss or damage to other people’s property.

One you may have heard of is civil authority coverage. This covers lost income due to a government directive that restricts access to the restaurant, even if it was unharmed, due to loss or damage to nearby property (usually within one- or two-miles). For many businesses, civil authority coverage may be the tightest “fit” because their losses have resulted from government orders to stay at home and shut down non-essential businesses.

Sounds great so far, but don’t expect insurance companies to quietly pay any COVID-19 claims. Many insurers are doing quite the opposite, quickly signaling their intent to deny coverage.

Many insurers wrongly claim that there is no coverage absent damage to the building structure or things inside it. In fact, anything that eliminates or impairs the usefulness of a structure may be covered. In the case of civil authority coverage, the question will typically be whether viral contamination caused the loss of use of property near a restaurant, which in turn led to a government order that prevented customers from patronizing it. These days the virus seems to be everywhere, in hospitals, homes, public transportation, doctor’s offices and stores. It may not prove difficult to trace government orders to nearby viral contamination.

Some insurance companies have pointed to exclusions for pollutants or contaminants. But these rarely include viruses. Unless a policy clearly does so, this exclusion should not prevent owners from obtaining coverage. 

Others will point to virus exclusions. If a policy contains one, if the exclusion is clear, and if the coronavirus caused your loss, then there might be trouble. But if some other covered event contributed to the viral contamination, which in turn led to your business interruption loss, it may be okay.

Other issues may pop up. For example, if an owner has not thoughtfully prepared and submitted business income worksheets and made sure to check and update insured values, there’s a good chance that even if the restaurant is  covered, it could be under-insured.

Given all this, many are wondering whether they should file a claim. Before deciding, owners may want to check with an insurance lawyer in their state. Unless a particular situation clearly rules out coverage, it will probably make sense to submit a claim, even if the insurance company will initially deny it. If a claim is filed, owners  should be prepared to complete and submit a “proof of loss” form showing the amount of the loss, something beyond the scope of this article.

Meanwhile, several restaurants have sued their insurers over business interruption losses; one of the first was filed by the owners of Napa Valley’s The French Laundry. Some seek to file class actions on behalf of other restaurants whose insurance companies have denied coverage. No one knows how those cases will be resolved, but if courts allow any of these to proceed as class actions, they could affect rights of all restaurant owners.

Don Scaramastra is a principal at Foster Garvey in Seattle, Wash. Don has successfully represented clients in litigation concerning insurance coverage, antitrust and competition issues, environmental cleanup cost recovery and in other constitutional and complex litigation. He can be reached at don.scaramastra@foster.com.