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Dawson and Rosenthal
Dawson and Rosenthal

Does Business Interruption Insurance Cover Payroll Costs?

Business interruption (BI) coverage is an add-on coverage to a business owner’s policy (BOP). The BOP typically covers property damage to the business and the liability of the business owner. But the BOP does not usually cover other costs of business operations – such as payroll and rent – that may become hard to pay if a business is forced to halt operations for a period of time. 

BI coverage is also known as business income coverage because it replaces the income that cannot be generated due to a business interruption. 

At Dawson & Rosenthal, we have been helping business owners enforce their rights to insurance coverage for over 30 years. Our San Diego business interruption insurance claims attorneys make sure insurance companies pay for the losses they have agreed to cover. 

What Does Business Interruption Insurance Cover?

Business interruption coverage is a coverage option that can be purchased to pay for the following business expenses and losses when a business is not able to operate.

  • mortgage/rent
  • utilities
  • payroll
  • taxes
  • lost profit
  • advertising
  • relocation expenses

When Does Business Interruption Insurance Apply?

BI applies when a covered type of damage occurs to a covered business as the result of a covered peril.  The covered type of damage is direct physical damage. And the covered perils typically include:

  • theft
  • fire
  • wind
  • falling objects
  • lightning
  • inability to access due to physical damage to a neighboring property

The Problem with Covid-19 Triggering BI Coverage

When it comes to business interruption coverage and the mandatory business shutdowns ordered in response to the Covid-19 pandemic, there has been much controversy over whether the virus can trigger coverage under a BI policy.

Technically, Covid-19 did not cause direct physical damage nor is it one of the perils that the insurance covers. And some policies specifically exclude viral and bacterial outbreaks from coverage.

Nevertheless, because of the damage done to businesses when they could not operate for much of 2020, California lawmakers are attempting to encourage insurance companies to accept Covid-19 as a valid coverage trigger for the application of BI coverage. 

In February 2021, AB 743 was introduced to the California Legislature. If passed, the law creates a rebuttable presumption that Covid-19 was present at an insured business and was the direct physical cause of the damage giving rise to a business interruption claim. The law would apply retroactively back to March 4, 2020. 

The legislation in California as well as similar legislation proposed in other states has been stalled by opposition. Opponents argue there are constitutional issues with trying to use the law to essentially rewrite private contracts. Insurance companies do not insure mass catastrophic events because they affect everyone at the same time and paying all the claims at once would create significant solvency issues leaving the companies unable to pay other claims. 

How to Get Help When an Insurance Company Wrongfully Denies Your Claim

Insurance companies are in business to take in more money than they have to pay out and rarely make it easy for those who try to collect on insured losses. If you are a business owner and your insurance company has denied your business interruption insurance claim, Dawson & Rosenthal can help.  

Our business interruption insurance claim lawyers work with clients in California and Arizona who have had their claims wrongfully denied by their insurance companies. If an insurance company has denied a covered claim without adequate justification, there may also be an additional claim for bad faith against the company.

Insurance companies need to uphold their end of the bargain. To discuss how we can reverse your insurance claim denial, contact us here or call us at 800-598-5017.