By: Michael Lambert
March 24, 2020
As the COVID-19 crisis continues to wreak havoc on businesses throughout the world, many business owners have reached out to their insurance brokers or companies to inquire about coverage for the mounting losses. The first responses businesses are likely to hear will include:
- Business interruption coverage does not cover economic losses suffered in connection with COVID-19;
- lost business is not a result of physical property damage required to file a successful claim; and
- exclusions for losses under the business interruption coverage in connection with viruses are ironclad.
Insurance companies are certain to quickly deny claims under business interruption coverage in the first instance. The validity of such denials is not, however, as clear cut as insurance companies would have their insureds believe. Businesses will have to take action to protect their rights under their insurance contract.
First and foremost, companies must carefully review their policies and understand the applicable law. It is imperative that insureds question blanket statements about insurance coverage, or the lack thereof. Why? Each insurance policy is different and contains different terms. While some policies may define a critical term, such as “physical damage,” which is often a trigger for business interruption coverage, other policies may not. Some policies may have undefined or ambiguous terms that, in the context of a particular loss scenario, will be interpreted, either by the insurance company or by a court, in favor of coverage. Moreover, identical terms in insurance policies may be interpreted differently by courts in different states. Finally, the factual circumstances underling each potentially covered loss will vary widely, which plays a large part in a coverage determination.
Second, companies should pay particular attention to any virus exclusions and civil authority provisions. Exclusion for losses caused by or resulting from “virus” appear in most, but not all policies. This exclusion, however, has not been discussed, analyzed or tested by the courts and there is no clear precedent for the current circumstances created by the COVID-19 crisis. Civil authority provisions may provide coverage for losses suffered as a result of a governmental order prohibiting access to a covered location. Whether an insured has suffered physical damage or loss will likely be an issue that will be addressed in this context. Again, it is critical the business owners understand the specific terms of their insurance policy and how they operate in the precise context of their business’s loss.
Finally, businesses must stay informed about the rapidly changing political and industry landscape. State legislatures have introduced bills to void certain exclusions and require insurance companies to cover business interruption losses caused by COVID-19. Certain states and cities have cited property damage from COVID-19 as the basis for mandating business shutdowns. The potential for recover under a business policy, while dictated primarily by the terms of that policy, may change as laws and policies are enacted. Business owners should be cognizant of any potential basis for recovery that may result from those changes.
The insurance industry is working hard right now to control the narrative that business policies will not cover COVID-19 losses. If they can dissuade businesses from filing claims, they can create a further basis for denial in the future; that they did not receive timely notice of a claim. Moreover, insurance companies operate on the assumption that a denial of coverage will be accepted by their insured. Filing a claim for a COVID-19 loss will most likely result in a quick denial of coverage. Business owners have to appreciate, however, that some denials of coverage are wrongful denials. It is imperative that business owners know their policy and its specific terms, understand the law and the legal and political landscape and develop a claims strategy before filing a claim. Seeking legal guidance in this process is critical to identify all potential avenues of insurance recovery.