With the global pandemic's devastating effect on the nation's health and economy, business interruption and other losses caused by the coronavirus are projected to total in the billions of dollars. Understandably, business owners are worried about how it will all impact their operations, and whether they have any recourse for their financial losses.
You would be wise to proactively review your insurance policies to determine whether any virus-related losses may be covered. While the scope of protection will depend on the specific terms of your policy, various types of coverage may insure against the coronavirus losses that are being experienced by commercial policyholders. Chief among the types of coverage is business interruption insurance.
What is business interruption insurance?
Usually purchased as part of a business's property insurance policy, business interruption insurance is intended to protect a business from losses sustained as a result of disruptions to their operations. Similarly, contingent business interruption insurance provides coverage for losses due to a disruption to a company's customers or suppliers.
A typical business interruption clause resembles the following:
"We will pay for the actual loss of business income you sustain due to the necessary suspension of your 'operations' during the 'period of restoration.' The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a covered cause of loss."
To take advantage of such coverage, an insured generally needs to prove:
physical damage resulting from a covered cause of loss to covered property;
an actual and necessary suspension or interruption of the insured's business caused by the physical damage to the covered property;
the existence of actual loss resulting directly from the covered interruption; and
the loss must be incurred during the effective coverage period in the policy.
It is the second requirement - a "physical loss" - that will likely provide the basis for many insurers to deny coverage for coronavirus-related interruption to business.
Policyholders should bear in mind, though, that the definition of a "physical loss" is unsettled, and courts have held that the term is ambiguous unless explicitly defined in the policy. That ambiguity creates an opening for a court to find that the insured had a reasonable expectation of coverage, which can be enough for that court to declare that there is coverage, regardless of the policy language. Thus, in many cases, an insurer's denial of a claim can and should be challenged by the insured.
Courts will determine the extent of coverage.
Because the scope of business interruption coverage is unresolved, there is likely to be a massive wave of litigation over disputed payouts. A few such lawsuits have already commenced, including ones filed by the Oklahoma Chickasaw and Choctaw nations against their insurers for loss of casino income, and others filed by high-profile restaurateurs.
There may be reason for optimism that such "declaratory actions" have a chance of success. Courts in a number of jurisdictions have found that contamination and other incidents that render properties uninhabitable or otherwise unfit for business constitute a "physical loss" sufficient to trigger coverage. These cases included the presence of bacteria, contamination by a dangerous chemical, infiltration by smoke from nearby wildfires, and the presence of asbestos.
Coverage litigation regarding asbestos may provide a useful analog for the presence of coronavirus. Courts have concluded that "contamination by asbestos may constitute a direct, physical loss to property," and that if "the presence of large quantities of asbestos in the air of a building is such as to make the structure uninhabitable and unusable, then there has been a distinct loss to its 'owner' which would constitute 'physical loss.'"
Thus, determining whether "physical loss" occurred will require courts to examine the policy language and particular facts of each case.
You might have other useful types of coverage.
In addition to business interruption insurance, there may be other sources of coverage, including "civil authority" insurance for when a governmental authority restricts public access to your business, or coverage for "communicable and infectious diseases" that does not require physical damage to the insured's property. Conversely, there can be virus or bacteria exclusions in your policy that would render any coronavirus-related claims futile.
Beyond just business interruption, claims under other policies you hold could arise if an employee catches the virus while on the job, or a customer gets sick while at your place of business.
Lang & Klain can help you review your policy and file a claim.
Due to the expected deluge of litigation over business-interruption insurance, business owners are advised to make their claims sooner rather than later. However, for those claims to have a chance, it is critical to have a detailed review of policy language and an understanding of potential sources of coverage. In fact, courts have held that an insured's reasonable expectation of coverage matters only if the insured actually read the policy.
When finally making a claim, an insured must be sure not to include any information in their notice of claim that could later be used by the carrier to deny the claim.
Lang & Klain's experienced attorneys are here to help you review your policies, file claims, and navigate the claims process during these unprecedented times. Together, we will make sure your business takes full advantage of any available insurance coverage to help you blunt the effects of the pandemic on your bottom line.
