Can I recover lost rental income due to the coronavirus? As we find ourselves in the middle of the coronavirus pandemic, a lot of questions are coming up in the insurance world with regard to whether insurance policies can provide any relief to landlords for the tenant’s inability to pay. It’s unfortunately quite sobering to think of how many people have lost their jobs due to the current coronavirus pandemic. To date, unemployment claims in the United States are nearing 17 million, so it’s best to be prepared for an increasingly likely scenario in which your tenant cannot pay their rent. Would insurance cover this loss of rental income, and if so, what coverage would be needed? For landlords, it’s important to understand what is and is not covered – and why.
Am I covered for lost rental income due to the Coronavirus?
This is the big question: As a landlord, are you covered for loss of rent due to coronavirus?
Business income is a coverage that is most likely included in your property policy (you may refer to it as “loss of rents”, but typically it is listed as “business interruption” or “business income” or in your insurance policy. These three terms are interchangeable for the purpose of this article). Business income provides coverage to the landlord from lost rental income due to an underlying covered cause of loss to the property.
For example, a tenant causes a kitchen fire that spreads to the two units beside it, in turn making their current unit and the two neighboring units uninhabitable, thus creating a loss of income due to the inability to lease out the damaged units. The key is that due to property damage, the units cannot be occupied for an extended period of time, while remediation is occurring. Therefore, you will typically see business income deductibles in the form of time (0 hours, 24 hours, 72 hours), instead of a standard monetary deductible. While it does depend on the specific language in the policy, most business income coverage provisions state that business income coverage must be triggered by a covered cause of loss to the property. The scenario in which a tenant is unable to pay rent (due, perhaps, to a pandemic) is not covered by business income since there is no underlying property damage triggering the coverage.
That being said, there has been some talk of Congress attempting to force insurance companies to cover lost income due to the pandemic, but thus far the attempts have not been successful for a myriad of reasons. Just on Tuesday, April 14th, the Insurance Commissioner of California mandated that insurance companies must look at and consider all business income claims. The argument is that acts of “Civil Authority” is a covered cause of loss for many insurance companies. But, the counterargument is that property policies also typically carry an “Exclusion of Loss Due to Virus or Bacteria”, and COVID-19 is a virus. So, it remains to be seen as to what insurance carriers will end up doing with the current coronavirus pandemic.