Business Insurance and Losses from COVID-19

Many Colorado businesses are desperately looking for ways to survive and recover from the economic fallout of COVID-19 and governmental responses to the pandemic. State and local public health agencies have closed non-essential businesses and restricted customer and employee access to other businesses. “Stay at home” orders, in particular, have drastically reduced consumer demand for non-essential businesses. As a result, many small business owners are doing the unthinkable: looking to their insurance policies for coverage of their sudden and devastating loss of income.

Rather than assume a claim is not covered, businesses should instead make the claim and let their insurers respond. As policies differ, it is always prudent to consult attorneys well-versed in insurance policies and coverage. While an insurance agent or broker is a good resource, they may (and probably should) decline to give coverage opinions.

Most business policies will have at least three kinds of coverage to pay for the loss of business income: property, dependent property and civil authority. Whether there is coverage will depend on the language in a given policy and the facts of a loss. 

Here are basic guidelines, though other parts of a policy will apply as well:

Property Coverage: Most property policies promise to pay for loss of income where there has been property damage, typically requiring some “physical loss or damage” at the business property. In Colorado, this may not be limited to structural damage. For example, a Colorado court held that there was “physical loss or damage” when a church could not operate because of gasoline fumes. In the current situation, businesses will point to state directives and Public Health Orders that have described COVID-19 as causing “property damage.” A business may still have to prove the virus was in their place of business, which may be difficult, especially if that determination was not made before the business closed or limited customer access.

Dependent Property Coverage: Where property damage at another business causes a loss to your business, there may also be “dependent property” or “contingent” insurance. An example is where a warehouse burns down, leaving your business without needed supplies. Because you still have to show your insurer that the other property had “physical loss or damage,” this may be tricky in COVID-19 claims.

Civil Authority Coverage: Loss of business income due to “civil authority” refers to acts by local, state or federal government. In general, to get this coverage, the government has to deny access to your business. While Colorado has ordered some businesses closed, others have only had operations restricted, which insurers will assert falls short of a complete denial of access. Most policies also require the government action to be because of “property damage” elsewhere. Orders by Gov. Jared Polis and the Public Health Orders assert they were issued, in part, because of “property damage” caused by the presence of the virus and not at a particular business. If your policy does not require the “property damage” to have occurred within a defined distance from your business, the Colorado state orders potentially suffice to trigger coverage. “Civil authority” coverage would only pay for loss of income for a limited period of time but is a step in the right direction for struggling small businesses. 

Virus Exclusions: A bigger hurdle, even where “property damage” is shown, is the exclusion added to most policies for losses resulting from a “virus.” These exclusions were introduced in 2006 following the SARS and other viral epidemics. At least six states — New Jersey, Ohio, Massachusetts, New York, Pennsylvania and Louisiana — are considering legislation to override the “virus” exclusion. 

Conclusions and Possible Remedies for Colorado Businesses:

• While we expect similar virus exclusion legislation to be proposed in Colorado, we urge business owners to read their policies since not all will contain this exclusion. 

• For policies with virus exclusion, you may be able to argue that the insurer cannot rely on the virus exclusion if the insurer did not properly or timely advise the business of the restriction. 

• Businesses may argue that the exclusion is against public policy and, therefore, unenforceable.  

• Businesses may be able to show that some covered event other than the virus caused the loss of income.

• There is some discussion of the US adopting a Pandemic Response Insurance Assistance program modelled on the current TRIA program for terrorism losses. The insurer would pay for loss, but that loss would be backstopped by the federal government. However, this may apply only to future epidemics.

• Insurance issues are fluid, so keep an eye out for developments – and tender your claims!

— Stephen Shapiro, Garth Gersten and Linda Hoover are attorneys at Shapiro Bieging Barber Otteson in Denver. They represent people and businesses in disputes with insurers and are recognized by Best Lawyers in America. Contact them at 720.488.0220. For more information please go to 

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