The recent outbreak of respiratory illness caused by a novel coronavirus has dominated the news cycle and caused sweeping damage to businesses across the U.S. As businesses continue to focus on how the virus impacts them, one critical question is the extent to which their insurance programs may cover business interruptions and related losses.
Most businesses rely on standard “all risk” property insurance coverage. These first party commercial insurance policies generally cover all risks of loss or damage to a company’s property, unless specific exclusions apply. These policies often include some type of business interruption (“BI”) coverage. Certain industries (such as hospitality, travel, and entertainment) will purchase specialized BI insurance that provides more coverage than the typical all risk policy.
“The extent to which a policy provides coverage for novel coronavirus-related business interruption losses requires careful analysis of specific policy language,” says Matthew R. Pearson, founder of Pearson Legal, P.C.
Here are some points to keep in mind:
1. What losses are covered by Business Interruption Coverage?
Some states and courts have held that contamination and other incidents that render property “uninhabitable or otherwise unfit for its intended use” constitute a direct physical loss. Thus, an actual on-site physical presence of the virus causing a business interruption would likely be considered a physical loss or damage triggering business interruption coverage under most all-risk policies. In this case, a pollution or contamination exclusion likely would not apply.
However, most businesses experiencing loss of income will not have confirmation of the actual presence of the virus at their premises. Without proof that their property is uninhabitable or otherwise unfit for its intended use, these businesses may have to look to other types of coverage.
2. Will my policy cover clean up?
Some all-risk policies expressly cover physical clean-up costs to disinfect and eradicate a contagious illness from the covered property, but this benefit may be limited to the actual (not merely suspected) presence of a communicable disease. A sublimit usually applies to this type coverage.
3. What if my supply chain shuts down?
You may be entitled to benefits under contingent business interruption coverage for an interruption loss resulting from physical loss or damage sustained by a provider, supplier or receiver of goods and services, such as interruption of a restaurant’s food supply chain or conditions that require your customers to shut down or restrict their services. Some policies even cover business interruption when physical loss or damage is suffered by a nearby museum, theater, sports venue, tourist attraction, etc. that draws business to your doors.
4. What if the city or state orders residents to shelter in place?
Many property insurance policies pay for business income loss and extra expense when an order by any local, state or federal civil authority impairs, hinders, or prohibits access to the insured premises, provided that such order is the direct result of physical damage of the type insured at the insured location or within a specified distance of the insured location.
Additionally, consider whether your business is named as an additional insured under another insurance program with access to coverage, such as under a landlord or manager’s policies.
Of particular note, even if you are unsure whether your policies provide coverage for business losses due to the COVID-19 outbreak, you should provide your insurers timely notice of any suspected property or business interruption loss. In addition to your usual business records, keep a log of any measures you take to mitigate damages. Also, stay informed on legislative efforts to expand coverage for business closures.
5. Do you require representation to collect from your insurance company?
If you suffered a business loss related to coronavirus and you feel that your claim has been wrongly denied or underpaid by your insurance company, contact us. Our team collectively has over 60 years of experience in representing policyholders against their insurance companies — and we’ll help you to recover what is rightfully yours.