Insurance Claims for Loss of Business Income Resulting from the COVID-19 Pandemic
Businesses nationwide have been forced into unprecedented difficulties as they attempt to deal with the dangers presented by the COVID-19 pandemic, along with government orders that have attempted to limit the spread of the virus. Companies across nearly all industries have been forced to drastically alter their operations, either by curtailing their normal functions or, in many cases, completely shutting down operations for the near term. In order to cope with the loss of income stemming from this landscape, many businesses have turned to their insurance companies or brokers, only to be told that their policies will not cover these losses. But businesses should be cautious of accepting that response without any push back.
Coverage for business interruption losses is often found in commercial property insurance policies. Generally speaking, but not always, business interruption coverage is triggered by direct physical loss or damage to the insured property that causes loss of income or extra expense. Many policies extend business interruption coverage not only when the insured property has suffered physical loss, but also where physical loss has occurred in the vicinity of the insured property, causing a civil authority to issue an order that prohibits or limits access to the insured property. Through either route, however, insurers are likely to take a hard-line approach that a coronavirus contamination or the threat of such a contamination does not fulfill the “physical loss” requirement that often accompanies business interruption or civil authority coverage.
But not every policy is alike. Some policies have more expansive coverage that may not require a physical loss. Each policy must be carefully reviewed in order to assess how the policy will respond to this pandemic.
Even when a policy does require direct physical loss or damage, case law exists in many jurisdictions supporting the position that, in fact, a virus contamination can fulfill the “physical loss” requirement. For example, some courts have ruled that bacterial contaminations and other circumstances that did not result in tangible, physical damage were nevertheless sufficient to satisfy the “physical loss” requirement. Whether a “direct physical loss” requirement justifies denial of coverage for coronavirus-related losses is an issue that will be confronted in courts throughout the country in the upcoming months and years.
Beyond the wording of the physical loss requirement, policies also differ with respect to the language in their exclusions – the provisions that allow an insurer to deny coverage arising out of certain types of loss. Many policies purport to exclude coverage for any loss caused by or resulting from any virus. Again, policyholders should make sure to scrutinize any such exclusion in order to determine whether the language in the policy clearly and unambiguously applies to loss associated with the COVID-19 pandemic. The expected wave of lawsuits against insurers for denial of business interruption claims will include policies containing virus exclusions, as some versions of that exclusion allow for arguments that the wording does not apply when the loss results from a government order rather than the virus itself.
In addition, businesses should be aware that a number of states – including Ohio – have proposed legislation that would require existing property policies to cover certain coronavirus-related losses. Ohio’s measure, for example, would apply to businesses with 100 or fewer full-time employees that have business interruption coverage in their property policies.
It is important to note that most policies require a policyholder to give prompt notice of any loss that it suffers, and the failure to do so may provide a basis for the insurer to deny the claim. KMK’s Insurance Coverage Group is available to provide your business with advice and guidance in analyzing your insurance policy, submitting a loss-of-business-income claim to your insurer, and assisting you in communicating with your insurer once it issues a coverage decision.
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