If you are a business owner who purchased business interruption coverage you have probably considered whether to file a claim or not. Before doing so, you might have done some quick internet research on whether your coronavirus related business losses are covered by your policy. You might have already tried to file a claim and received a letter from the insurance company denying your claim for various reasons. Before you give up, read this post and hopefully it can clear up some of the confusion
First, this event is unique in American history. There has not been a Pandemic that has caused substantial illness in America since insurance companies starting writing business interruption coverage. This means that this is the first time that insurance policy language will be tested against this set of facts. There are no previous cases that provide any clear guidance on whether policies provide coverage or not. It simply has not been addressed by the courts. As a result, anything that you see on the Internet that says unequivocally that COVID-19 closures will not be covered by business interruption policies is just posturing by the insurance industry and its lawyers. Whether there is going to be coverage is going to take a little more analysis.
It all starts with the policy. You must have a complete copy of your policy including all endorsements and your declarations page. There is not a single uniform business interruption policy and while many of these policies can be similar, they are not all identical. They have different language, different coverages , and different exclusions. As a result, make sure that you have a complete copy of your policy documents.
Is There Physical Damage?
Most commercial property policies contain a requirement that there be direct physical loss or damage. Often, the business interruption coverage in your property policy will state that there must be direct physical loss or damage to the premises. Insurance companies are arguing already that viral contamination is not direct physical loss. However, there is case law that indicates that physical loss does not have to mean structural damage or destruction of the property. In fact, cases have held that odors, the presence of asbestos, and the presence of safe but prohibited chemicals could constitute physical damage.
Most policies also contain a pollution exclusion and they would have no need for this exclusion if insurers did not consider things like pollution to be a direct physical loss to the property. It is by no means clear that viral contamination due to Covid-19 is not a direct physical loss or damage to property especially given all that we have heard about the extremely contagious nature and ability to stay alive on surfaces.
Is There A Required Closure?
Many business interruption policies also offer coverage known as the civil authority extension. This provides certain coverage for business losses when businesses are forced to close by a governmental authority. Often, these clauses do not require physical damage to the business that has been closed but require damage somewhere in the area. Given the extent of the closures mandated by various health authorities due to coronavirus, many businesses will meet the portion of this coverage requiring a mandated closer by the government. In addition, given the extent of coronavirus contamination, many businesses will be in an area that has suffered coronavirus contamination. As a result, this coverage could apply to many businesses
Is The Virus Excluded By The Policy?
Many websites and commentators argue that commercial property policies containing business interruption coverage exclude losses resulting from exposure to viruses. However, while many policies do incorporate an exclusion relating to viruses, many others did not. In addition, there are different versions of the exclusion. One rule that courts must apply when interpreting insurance policies is that exclusions must be interpreted narrowly. As a result, if the exclusion is unclear and incapable of more than one reasonable meaning, it must be interpreted in favor of the policyholder. Also, the fact that there is an exclusion seems to indicate that at least some insurers were concerned that their policies might provide coverage in the first place.
Don’t Give Up!
If your agent, broker, or insurance company tells you that you do not have a claim, don’t give up. Since this is a unique and extreme event (some might even call it a “Black Swan” event) there is no binding case law saying that coverage does not exist. In addition, in cases where language is unclear, courts generally favor the insurer. As a result, make sure to talk to an attorney that you trust about whether to pursue a claim or not. Of course, Matt and I are here for you if you need us and are happy to answer any questions.