Insurance Coverage May Be Available for COVID-19 Losses
In a previous news item on our website, we advised business owners affected by the COVID-19 pandemic to immediately obtain and review a copy of their insurance policies to determine if they may have coverage for coronavirus losses. It is important that business owners review their commercial general liability, business interruption, event cancellation, and nonappearance insurance policies. It is possible that one of these contain a provision that may cover some losses given the government-mandated quarantines, closures, or limitations. It is imperative that business owners understand that most often, business disruption insurance is not issued in a separate insurance policy and is instead normally included within their broader business insurance policies.
Furthermore, business interruption coverage may sometimes be included in other types of insurance policies, including special peril policies or business owner policies. Coverage for COVID-19 claims may also be found in more specific clauses within a policy, including communicable disease clauses or loss of attraction clauses. Some policies may also specifically reference coverage for losses arising out of actions by civil authorities and/or interruptions in your supply chain. While insurance companies may have already provided business owners with a letter detailing the applicability of some policy provisions, it is critical for business owners to review the specific language of complete policies with an experienced attorney.
Business interruption insurance, in particular, is triggered by a covered cause of loss, one that often requires a “direct physical loss” to the property such as a result of fires, earthquakes, tornadoes, or other incidents. The looming questions are (1) whether a business that voluntarily closes but is still habitable would still have a “direct physical loss” and (2) whether a government order directing closure constitutes a “direct physical loss”.
Historically, business losses from communicable diseases or pandemics have specifically been excluded from coverage. This occurred in response to the barrage of claims filed in response to the 2003 SARS outbreak, with most insurers now excluding communicable disease from their traditional business interruption policies. Furthermore, even where businesses have pre-negotiated communicable disease coverage, those policies often limit coverage to direct costs associated with cleanup and fail to extend coverage to include loss revenue. We therefore anticipate that insurers may automatically deny COVID-19 business loss claims and understand that many businesses will require legal assistance in disputing negative coverage determinations. Such exceptions may be for ingress/egress claims under property insurance policies or for those that have non-standard insurance policies.
One New Orleans restaurant recently sought a legal remedy on this exact issue before the insurer had even had an opportunity to deny its claims. The Bourbon Street business, Oceana Grill, asked a Louisiana judge for a declaratory judgment that its business-interruption policy covers its damages for any required coronavirus closure. Oceana has an all risk policy without express exclusions of a virus or global pandemic. Cajun Conti, LLC et al. v. Certain Underwriters at Lloyd’s of London,, Civil District for Parish of New Orleans, available at: https://www.insurancejournal.com/research/app/uploads/2020/03/Oceana-Petition-for-Dec-J-executed.pdf.
There is some precedent across the United States to support such an argument and that businesses are sustaining a “direct physical loss” by the virus. For example, in Gregory Packaging Inc. v. Travelers Prop. Cas. Co. of Am., 2:12-cv-04418 (D.NJ November 25, 2014), the Court reviewed national case law and noted that temporary and non-structural losses, such as contamination or uninhabitable buildings due to dangerous gases or bacteria are considered a direct physical loss triggering coverage. While insurance experts and attorneys have starkly contrasting views on how Cajun Conti, LLC should or will resolve, it is likely that this is just the very beginning of extensive coverage litigation between insurers and owners of COVID-19 impacted businesses.
In addition to seeking legal counsel to assist with their business interruption claims, many business owners are now asking their lawmakers to consider legislation that would force insurers to cover COVID-19-related business losses, even if the insurer did not specifically issue a policy to cover this type of loss, and in some instances, even where specific virus exclusions are contained within the policies.
On March 16, 2020, a New Jersey bill was introduced that would force insurers to cover COVID-19 related business interruption losses, essentially overriding the plain language of the already-issued insurance policies in the State. Two days later, on March 18, 2020, a bipartisan group of eighteen U.S. House members asked leaders of the insurance industry to retroactively recognize financial losses relating to COVID-19 under commercial business interruption coverage for policyholders. On March 27, 2020, a New York bill was introduced that would force insurers to cover COVID-19 related small business losses through property insurance, including business interruption policies. To follow this important bill, the link is here: https://www.nysenate.gov/legislation/bills/2019/A10226
Until business owners learn how insurers, lawmakers, and the courts will respond to COVID-19-related business interruption claims, they should take all necessary steps to preserve their claims by specifically and fully documenting the impact of COVID-19 upon their business. Businesses should compile all financial and operational records so that a proper analysis and potential claim can be filed. This information should immediately be provided to their insurer, in the manner and time set forth in the specific policy, placing the insured on notice of a claim. This is a prerequisite to an insurer covering a specific loss and will preclude insurers from later disclaiming coverage based upon lacking notice of the loss.
Additionally, upon receipt of any coverage denial, business owners should meet with an experienced attorney to determine if pursuing a declaratory judgment action is appropriate based upon the language in their specific policy and the insurer’s reasons for denying coverage. Finally, business owners should continue to communicate with their legislators to encourage the evolution of laws that may assist them and others similarly situated in obtaining coverage for their COVID-19 losses.
To schedule an appointment for a free consultation for a small business, you can reach out to attorney Kelly Mikullitz at (518) 462-5601 or complete the form here.