Business owners who have had their businesses affected by the COVID-19 pandemic should proactively analyze whether they have valid insurance claims or whether they may be entitled to possible government relief if traditional claims are denied. Because insurance policies and relevant factual scenarios are so different, business owners should immediately consider policy reviews with their agent and/or lawyers, as well as notifying their carriers of potential losses. The stakes are obviously high; business survival may depend on it.
Let’s start with the business interruption claim. The typical example might be the business shut down due to fire damage and the insured seeking reimbursement of lost income or extra expense incurred as a result. Most policies, however, require the insured to show some sort of “physical loss or damage” to the insured premises as well as a “covered cause of loss.” That is typically easy to do with a fire, but much more challenging with COVID-19 given current court precedent.
Civil authority coverage may reimburse a business for lost income or extra expense when access to the insured premises is prohibited by a civil authority order; such as those issued by state and county governments. However, the prohibition on access must generally be the result of a “covered cause of loss” (i.e. a fire) as well as physical loss or damage to property away from the insured business (i.e. a nearby business). Therefore, a carrier may determine that a forced closure order arising out of COVID-19 is insufficient to trigger civil authority coverage.
Because of the many unknowns, including how courts will ultimately interpret business interruption policies in response to COVID-19 related claims, business owners who has suffered losses should consider filing a broad-based claim to trigger as many applicable coverages as possible under their respective policies. Filing a claim, even if ultimately denied by the carrier, could also benefit business owners in the event of a larger industry-wide solution implemented by government. To date, state and federal legislatures are entertaining a variety of bills that seek to create coverage for business interruption losses where none may exist under current policy language and court precedent. Should these measures prove successful, we think business owners will be in a better position for possible relief if they have already tendered their claim to their carrier and received the carrier’s position in writing.
Some businesses may also have special coverage for communicable diseases or pandemics. This can be a sub-set of business interruption coverage or included as a pandemic endorsement. Note that this coverage may also be subject to lower limits and higher deductibles. If you are in the healthcare industry, you should carefully review your policies for this particular coverage as there appear to be less hurdles to loss reimbursement than a typical business interruption claim. That being said, one carrier has already denied a pandemic claim on the basis that COVID-19 was not one of the listed “Covered Diseases” in the endorsement and even though the endorsement covered losses arising from SARS. Accordingly, one issue that may arise under this particular endorsement is whether COVID-19 is considered a mutation or variation of SARS.
Check your policies for virus exclusions, which would specifically eliminate coverage – either as an endorsement or within the main policy form. Again, though, this is a fact-intensive analysis since not all policy language is the same. Moreover, at least one commentator advanced the theory that the 2006 ISO “Exclusion for Loss Due To Virus Or Bacteria” should not be enforceable on the grounds that insurance industry personnel misrepresented the exclusion to regulators when seeking state approval.
As mentioned above, COVID-19 coverage issues are highly dependent on the specific language of the insured’s policy. If you have not already, gather your policies and discuss with your agent/broker and lawyer any losses or potential losses from which you may be able to claim insurance coverage. This is important due to varying policy language.
Finally, use this crisis as an opportunity to review your entire risk management portfolio with your agent/broker. This will ensure that you understand what coverages you have, the limitations of those coverages, and, of similar importance, what coverages you do not have. This action will help you prepare for the next crisis. If you have any questions or would like additional information, please contact Gunster attorneys Timothy S. Danninger, Stephen C. Richman or Brad Johnson.