What is COVID-19 Business Interruption?
COVID-19 Business Interruption refers to the loss of business income that restaurants experienced due to government-mandated closures, capacity restrictions, and decreased customer traffic during the COVID-19 pandemic. Most restaurant owners discovered that their standard business interruption insurance did not cover pandemic-related closures because these policies require “direct physical loss or damage” to property, and most insurers successfully argued that a virus or government closure order does not constitute physical damage. Some restaurant owners filed lawsuits against their insurers seeking coverage, and while a small number of policies with specific language did provide coverage, the vast majority of business interruption claims related to COVID-19 were denied. Following the pandemic, some insurers began offering pandemic business interruption coverage as a separate endorsement, though it is expensive and comes with significant limitations and sub-limits.
What you need to know
Why standard policies didn’t cover COVID-19 losses
Insurance companies denied claims based on:
- Physical damage requirement—policies require direct physical loss to property
- Virus exclusions—most policies added virus exclusions after SARS in 2006
- Government action exclusions—closure orders aren’t “direct physical loss”
- Court rulings—most judges sided with insurers on policy interpretation
Current pandemic coverage landscape
Post-COVID changes to business interruption insurance:
- Explicit pandemic exclusions added to most policies
- Separate pandemic endorsements now available (expensive, limited)
- Sub-limits of $25,000-$100,000—far less than actual closure losses
- Strict requirements—confirmed cases on premises, specific government orders
- High premiums—often $2,000-$5,000+ annually for limited coverage
Critical warning: Standard business interruption insurance still does not cover pandemic closures. Post-COVID policies have explicit exclusions making this even clearer. Assuming you have pandemic protection without specifically purchasing it is a dangerous mistake.
Why it matters for Restaurant Owners
The COVID-19 pandemic financially devastated the restaurant industry, with thousands of restaurants permanently closing due to mandated shutdowns and customer loss. Many restaurant owners believed their business interruption insurance would protect them, only to discover policies excluded pandemic-related losses or required physical property damage. This left owners with no insurance compensation despite losing months of revenue while still paying rent, utilities, insurance, and fixed expenses.
Lessons from COVID-19
The pandemic taught critical insurance lessons:
- Read your policy’s trigger language—understand exactly what causes business interruption coverage to activate
- “All-risk” doesn’t mean “all circumstances”—exclusions eliminate many loss types
- Government closure orders typically aren’t covered—without specific civil authority coverage for pandemics
- Business interruption ≠ pandemic protection—these are different coverages
Post-pandemic options
Restaurant owners now face difficult choices:
- Purchase pandemic endorsement—expensive coverage with low limits that may not justify cost
- Self-insure—maintain 3-6 months of operating expenses in reserves
- Go without—accept the risk of future pandemic closures
- Diversify revenue—build takeout/delivery to survive future restrictions
The reality: A restaurant owner pays $8,000 annually for business interruption insurance with a $2M limit. COVID-19 mandates force a 3-month complete closure. Lost revenue: $180,000. Insurance payout: $0 due to pandemic exclusion. The owner depletes savings and closes permanently.