Insurance in the Time of Coronavirus – Business Interruption and Your Next Steps

This begins a series on insurance issues related to disaster resilience, especially with regard to the coronavirus pandemic and the upcoming hurricane season.

While disasters are often somewhat personal (fire, sprinkler issue, robbery) or regional (hurricane, tornado, earthquake), rarely have we seen damaging events that effect the whole country like coronavirus has.  Insurance, as a result, is getting a new and intensified look as businesses across the country look to see how they can recover from loss, and discover that insurance companies are rejecting coronavirus related insurance claims.  Whether an insurance provision covers the damage a business suffers from being closed during the quarantine on the face of the document or coverage is proven through litigation, everyone should take this opportunity to look more closely at what their insurance policy actually covers.  Hurricane season is fast approaching. Tornados are already wrecking cities in the south.  Fires in the west are soon to follow.  Dealing with one crisis does not, unfortunately, mean that the crises of normal years aren’t around the corner. You should be prepared.

Does my insurance cover losses from Coronavirus?

There are several policies that are often looked to as possibilities for coverage due to lost income from the coronavirus and safer-at-home orders.  Keep  in mind is that every insurance policy is different.  Business owners have different needs, income, risk ability, and insurance agents. Consequently, your policy may cover or exclude coverage for claims caused by the coronavirus pandemic.  What is certain is that insurance companies are facing a lot of claims these days and will fight hard to require strict compliance with policy terms.  It’s vital that the first thing you do is read your policy closely. Read it from start to finish, and don’t forget the exclusions and endorsements which will undoubtedly modify the language in the other parts of the policy. Reach out to a professional if you need help discerning what your rights and limits to coverage are. Fletcher Fischer Pollack can help.

Business Owner/Interruption/Income Insurance

Business Income insurance, also referred to as Business Interruption or Business Owner insurance, is typically purchased as part of a commercial property insurance policy, and usually covers direct physical loss or damage to the insured property from a covered peril.

What is physical damage?

You’ll notice that “physical loss” or “property damage” are likely not defined in your insurance policy. This vagueness means that most insurance companies are looking to a very basic definition to cover the meaning of these terms.  And those damages generally relate back to the covered perils – fire, lightning, windstorm. Not a virus. But the fact that there’s no definition means that there are opportunities to argue for a broader meaning.  And insurance litigators across the country are arguing about these terms.

Has the coronavirus physically damaged my business?

The common claim is that the virus physically damages the property by contaminating physical surfaces or the building environment and the presence of the virus therefore restricts use of the property for the business or forces you to close. How do you prove actual contamination? Because the virus only lasts for a temporary period of time, is able to be cleaned up, and may or may not be re-contaminated afterwards, it’s unclear if you can prove that it has physically damaged the property.  Perhaps showing convincing an insurance agency or court that an employee or customer got sick from being in your space. With the coronavirus having such a long incubation period, this too is very difficult to do.

Business income insurance is also limited in time. In other words, your policy only covers damage during the specified period of time – that time period generally starts after a waiting period of around 72 hours, and ends after the restoration of the property is complete.  Cleaning up a property damaged by coronavirus can be done relatively quickly, so the amount of time coverage may be really limited.

Moreover, most businesses are closing or have closed not because of contamination but in order to avoid contamination. Proving physical damage will be very difficult, but that doesn’t mean no one is trying.

What about those cases dealing with ammonia or dust? Can the virus be considered pollution?

While many cases have ruled in favor of insurance companies, finding physical damage to have a more basic, dictionary meaning, over the past decades, there have been several court cases that found physical damage from analogous events – where ammonia, dust, odors, smoke, and e coli were considered physical damage that left the property unfit for use, even when the business suffered no visible damage.  Some courts have been flexible with the definition of physical damage when it comes to environmental contamination and pollutants.

Named peril vs special causes of loss (all risk) property insurance policies

Another thing that may impact whether you are covered for damage caused by the pandemic, is the type of policy you have – named peril or special causes of loss.  Named peril coverage lists the events that will trigger insurance.  Viruses and contagious outbreaks are rarely listed as covered perils, so it is unlikely that a named risk policy will cover losses due to the pandemic.  Special causes of loss policies (formerly known as “all risk”), on the other hand, generally covers all causes of loss except those which are specifically excluded from the policy.  Coverage for losses from the pandemic may be covered if there is no exclusion in the policy, and the insured party meets all the other limitations and requirements of the policy (including that it suffered direct physical loss).

Check your policy closely.  It may include a virus, mold, pollution exemption that modifies the main policy. Or the main policy may exclude it but there may be an endorsement that covers it for cleanup of contamination or damage.

The Virus Exclusion

Many commercial policies will include an exclusion for “loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease.” If you’ve got this in your policy, you’re probably out of luck.  However claims are being made that since the policy is available to the insurance companies, the failure to include it means that virus coverage is not excluded, and in fact is included in your policy.

Communicable Disease Extension

Some policies will include a coverage extension for communicable or infectious diseases. Generally hospitals and health care businesses will push for this extension, but sometimes other companies will have it added to their policy.  For example, Wimbledon took out a $2 million pandemic insurance policy for the past 17 years.  They are expected to receive $141 million.

The policy generally is triggered when there is (a) actual presence of the disease at the property and (b) access to the property has been limited or prohibited by an order by a governmental agency.  Like business income coverage generally, there is usually a waiting period.  In addition to the lost profits and lost income incurred due to the virus, this coverage will often cover cleanup of the disease. It also generally covers reputation management, which means it’s used to assist the company in dealing with the bad media and damage to the company’s reputation that would likely come from a having diseased-infested business.

Environmental Policies

Certain policies include coverage for environmental pollutants.  These policies generally cover liability for bodily injury, property damage, and/or remediation costs from contamination claims. Some policies are more limited, and only cover specific diseases or pollutants.  But for those policies with a broad definition of pollutant, some are making claims based on the argument that the virus falls within that definition.

Contingent business interruption insurance

Let’s say you are able to stay open and operate, but your supplier can’t operate as a result of a covered peril.  This is where contingent business interruption comes in.  This type of insurance covers your losses due to the interruption of business of one of your suppliers.  Like your insurance, however, this also requires that the supplier’s closure be the result of physical loss or damage to its property. If the supplier can’t get business income insurance for being down, then it will be tougher to make a claim on your own contingent business interruption insurance policy.

Note that some insurers offer Supply Chain Risk Insurance.  This covers contingent business interruption issues but doesn’t require physical damage.  Check your policy to see if this was included.

Civil Authority

Civil Authority coverage is another area where insurance companies are arguing that the standard language does not cover the situation most businesses are being faced with during the coronavirus pandemic.  This coverage gets triggered when a government prohibits access to a business because of damage to someone else’s property.  Like other coverage, civil authority coverage terms vary in policies.  Generally, the more strict policies require physical damage. Whether or not coronavirus causes physical damage to your facility or to another, sufficient to lead to a civil authority shut down, will undoubtedly be litigated.  These policies also may require that the physically damaged property be within a certain distance from the insured’s property.  Another important term to review is whether the order must be mandatory and deny access. Advisory or voluntary guidance, even from a government agency, is unlikely to trigger coverage.  Moreover, the loss must be from the governmental order, not the pandemic itself. And the loss would only be calculated for the time the order is in effect. Therefore any voluntary closing out of safety or care for your staff or customers, either before the order was issued or after the order is lifted would also likely be insufficient to get coverage.

Ingress/Egress Coverage

Another type of coverage that might be in your policy is Ingress/Egress coverage. This is much less common but provides coverage for business income losses that are caused by an event that prevents ingress or egress to your property. Ordinarily, this might be imagined to be a flooded street or mudslide, construction blocking the road, downed power lines. Individual policies vary and some may require physical damage and some may not.  In the current situation, a government order to shut down businesses and stay-at-home might be sufficient to satisfy this type of coverage.

So What Should I Do Next?

  • Read your policy, and look to see whether you might have a claim for loss.
  • Connect with a professional to determine what coverage is available to you. Learn what risks are out there that you might not be adequately insured for. Keep an eye out for a future blog on reviewing your insurance prior to this summer’s season of hurricanes, tornados and wildfires.
  • Make sure you are capturing your lost profits and expenses.
  • Are your losses due to supply chain problems? Reach out to those businesses to see if you might have a contingent business income claim.
  • Make sure you have digital access or copies of all important documents and financial records. If you don’t have them digitally, are you able to enter the business to get them?