Your COVID-19-Related Business Losses Might Be Covered by Insurance
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Cannabis businesses impacted by COVID-19 restrictions may need help to blunt the effects. A possible relief to financial loss may be insurance, including business interruption and contingent business interruption. What do these terms mean?
- Business interruption insurance is generally intended to cover losses from direct interruption to the insured’s operation, such as fire or natural disaster. Coverage can include lost revenues, rent, or utilities.
- Contingent business interruption generally provides coverage for lost income related to third-party issues, such as a problem with a supplier, vendor, or major partner.
Whether you have the right coverage depends on what policy and riders you purchased. Potential coverage can include the following: ordinary payroll, extended period of indemnity, contingent extra expense (reimburses lost profits and expenses resulting from interruption arising at the location of a customer or supplier), ingress/egress (pays for loss of income triggered by physical loss that prevents or hinders literal entry to the insured's business), to name a few.
One caveat—many insurers now exclude coverage for disease outbreaks, a change made after the SARS outbreak of 2003. But some insurers offer disease-related coverage riders that may be purchased. Riders must be negotiated and accepted at the time the policy goes into effect. Even for such riders, there are limitations on the amount of recovery.
If your policy includes business interruption, COVID-19 losses still may not be covered – many policies provide that mere loss of income alone may not qualify. Such policies require a demonstrable loss of the physical use of the business’ property. But if you have disease-specific coverage, it could offer compensation including for losses arising from the temporary closure of the business to sanitize facilities or to protect employees or consumers.
What you need to do
As you can see, periodic policy review can be worthwhile. Here are the steps you need to take.
1. Initiate a policy review (now and annually)
You may not have business interruption coverage, but it certainly won’t hurt to double-check. Remember the adage about when you ‘assume.’ In addition to assessing coverage related to disease outbreaks, this is an opportune time to review your policies as a whole – do they meet all current needs in a post-COVID-19 world? Are your people, equipment, and intellectual property adequately protected? Does the policy match your evolution of risk?
2. Request a complete copy of your insurance policy asap
Do not assume you have a copy of the complete policy on hand. You probably do not. Request a certified copy, including all endorsements, in writing from your insurance broker or carrier. Do it today – your claim is subject to notice obligations and deadlines. It could prove costly to delay filing a claim.
3. Have someone capable review the policy
Requesting the policy is not enough. Read it in detail. Look for the clauses or sections labeled similarly to “cause of loss to trigger coverage.” Read those sections in their entirety. If you do not have a complete understanding of what you are reading, call your lawyer. Insurance policies are written very deliberately by armies of insurance industry lawyers whose interest is to look out for the insurance industry. There is no shame in saying that you do not understand your insurance policy. Most people don’t. Get help if you need it.
While many cannabis businesses feeling the sting of the current economic climate do not have access to relief package funds, insurance might offer some protection depending on specific needs and losses. A trusted broker or lawyer can review coverage now and provide coverage recommendations based on a new risk outlook.