COVID-19 Business Interruption Claims
Are Business Interruption Losses Covered By My Insurance Policy?
The COVID-19 crisis is affecting every person and business around the world. It will impact the insurance industry significantly and will undoubtedly shape how future policies are written. State and local governments have issued civil authority orders to implement and enforce social distancing requirements in hopes of slowing the spread of the virus. While these measures appear to be working, a collateral result is the massive shutdown of many industries around the nation and beyond.
Businesses and ordinary working people are suffering because they cannot work and must stay home to avoid contact with the deadly COVID-19 virus. Because of this, businesses are running out of operating capital and being forced to temporarily or permanently shut their doors.
Thankfully, the insurance industry offers protection to businesses that face the risk of such disruptions or shutdowns. The product is known as business interruption or business income insurance, and it can take many different forms.
The question most business owners are asking the lawyers of Daly & Black, PC during this crisis is whether or not their insurance policies cover their business interruption losses.
The short answer: it depends. Maybe.
Here are answers to some of the most frequently asked questions we are seeing.
Does my policy have an exclusion for losses caused by COVID-19?
Each policy is different. Some policies specifically exclude coverage for damages arising from viruses or other such contaminants. After the SARS epidemic of 2006, many insurers started including such exclusions because they recognized the enormous risk associated with covering a business for losses associated with a pandemic. But not all insurers took this route, and some business owners simply refused to accept such products. As a result, the market is flooded with business interruption and business income policies that fall into both buckets – those with the exclusions, and those without. Even policies with the exclusion can sometimes extend coverage, depending on how the policy is written or worded. And remember, it is the insurance company’s job to demonstrate that an exclusion exists and applies. We strongly recommend that every business ask for a copy of its actual (and entire) policy and have a qualified first party insurance lawyer with experience handling business interruption and business income claims review the language to determine whether a coverage argument can be made.
Do I have to demonstrate direct physical loss or damage in order to collect on my policy?
It depends. Your policy, like many, may have a requirement that an insured suffer from direct physical loss or damage in order to recover. Most policies do have such language. But what does it mean to have direct physical loss or damage? Good question. Many courts have concluded that contaminants such as smoke, toxic gases, foul orders such as cat urine, compromised soil around a property, dangerous invisible fibers, and other such circumstances can constitute a direct physical loss or damage, even in the absence of structural damage to the property. In other words, you might not have to demonstrate that you have the virus inside of your business to make the case that you have suffered “direct physical loss or damage” to the business. Ultimately, the courts and, in some cases, juries in your state will have to determine whether you have suffered a direct physical loss depending on your policy’s language and your specific set of circumstances. But one thing is clear: the answer is not nearly as simple or cut-and-dry as the insurance industry and some of its brokers would have you believe. This is why we strongly encourage you to have a qualified first party insurance lawyer with experience handling business interruption and business income claims review the language in your policy and assess the facts surrounding your case.
My state or local government enacted a civil authority order – or some other instruction that makes us stay home – does that mean I am covered?
Maybe. Depending on how courts and juries interpret the direct physical loss or damage requirement, the “shutdown” order or orders that forced you to close your business may be sufficient to trigger business interruption coverage. But even if it turns out that you cannot show direct physical loss or damage to your business, you may still have coverage. Many policies include specific coverage that applies in situations where action of civil authority has resulted in business interruption or loss of business income. This type of specialty coverage is typically found in policies that are commonly referred to as “all risk” policies and it is usually provided as “additional coverage.” That just means that as long as you do not have a virus exclusion in your policy, and you do have civil authority coverage, a governmental order requiring you to stay home or shutter your business may trigger the coverage. Importantly, civil authority coverage does not typically require you to show direct physical loss or damage to your property. Rather, the coverage is triggered when an action of civil authority denies access to your business due to physical loss or damage to other property. It is not uncommon for these provisions to limit the availability of coverage to a certain time period following the action of civil authority. Your policy language and policy limits will determine whether and how much you may be able to recover. Again, it is imperative that you have a qualified first party insurance lawyer with experience analyzing these types of claims evaluate your claim based on your policy, your circumstances, and the order or orders affecting your business.
Should I make a claim on my policy?
Generally speaking, there is little downside to making a claim. An insurance company should not “drop” you for making a claim related to losses stemming from a pandemic. It’s not like an auto policy, where you increase the insurance company’s risk by being a terrible driver. The pandemic was not your doing, so the insurer’s risk does not change simply because you made a claim here.
My broker and/or insurance company told me I don’t have coverage. I guess that’s it, right?
No. Make sure you consult a qualified first party insurance lawyer with experience handling business interruption and business income claims and allow him or her to assess your individual situation to determine whether you have coverage. Brokers are often well-meaning but not well-informed, and insurance companies are frequently not on your side. Get advice from a lawyer you know and trust who is well versed in these matters.