Insurance Alert: Analyzing Business Interruption Insurance Claims

Business interruption insurance has become a hot topic.  On Monday, the first insurance coverage lawsuit was filed in Louisiana:  Cajun Conti, LLC v. Underwriters at Lloyd’s London.  The Small Business Administration is now offering federal disaster loans which will be limited in amount by the recovery of business interruption insurance proceeds.  And, there are a growing number of legislators demanding that insurers pay business interruption claims, both at the state and national level. 

As the economic fallout from the coronavirus continues to grow, affected businesses are asking:  Am I covered?  Should I make a claim?  And, is the government doing anything about this?

Are You Covered?

The answer is you might be covered, but it will likely mean a fight with your insurer.  Battle lines have been drawn—the web is filled with articles written by insurers and their lawyers, each arguing that losses associated with coronavirus are not covered by insurance.  But, insurance coverage doesn’t work like that—each policy and set of facts are unique.  And, in virtually every jurisdiction, policies are interpreted in favor of coverage—ambiguities in the policy are construed against the insurer and exclusions are applied only if they specifically and clearly define that which is precluded.  Depending on the facts of your claim, and your specific policy language, you might be covered for income lost as a result of coronavirus. 

What Are the Coverage Issues?

Insurers have raised several:  (1) that the policy only covers damage to or destruction of property, which doesn’t exist in the context of coronavirus claims; (2) that, even if property damage exists, it didn’t cause the insured’s loss of income (i.e., the insured didn’t close because of property damage, but to limit the spread of the virus); and, (3) that viral/bacterial exclusions preclude coverage in any event.  With respect to Civil Authority coverage, insurers will likely also argue that “recommended” or partial closures, such as prohibiting dine-in options but allowing carry-out, don’t trigger the coverage because the insured has not actually been denied access to its premises.

So, Are You Covered?

There are cases which have found coverage under similar circumstances, i.e., cases where courts have held that property can sustain “physical damage” even if it hasn’t suffered “structural alteration.”  But, generally, coverage is going to depend on your specific policy language and facts, which could include:

• Does your policy provide Civil Authority Coverage?  Does such coverage require damage to or destruction of property? 
• Have you suffered a loss in functionality? Is your property uninhabitable?
• Does your policy include a viral / bacterial exclusion?  Is it applicable to business interruption?  Is it written broadly or narrowly?  Can it be read in such a manner as to not apply to your specific fact scenario?  (Remember—read exclusions narrowly.  If there is a reasonable way to read the exclusion so that it doesn’t apply to your claim, it won’t apply).
• Do you have any coverage extensions that provide coverage for virus / bacteria losses – Civil Authority Coverage, Communicable Disease Coverage, Crisis Management Coverage?
• Did your business close as the result of a government mandate?  A recommendation by officials?  Or did it close voluntarily?
• Did your business have a coronavirus outbreak at the premises before its closure?  Do you have evidence of the presence of the virus at your business?
• To what extent were employees prohibited from accessing the business premises?

Analyzing these, and related, questions with your counsel can help you determine if there is a possibility, or even a probability, of coverage.

Should I Make a Claim?

If, after analyzing your polices and circumstances, you and your counsel believe you have a reasonable prospect of coverage, you should consider making a claim.  Pay careful attention to your policy’s notice and suit limitation provisions—there may be requirements that you need to follow in order to preserve your coverage.  And, of course, you should carefully track all damages that you have suffered. 

That said, insurers have clearly signaled that, for the most part, they intend to deny these claims.  If your business is hoping to recover sums from its insurer immediately to improve your cash position during the outbreak, that is unlikely to occur in the near-term.  In deciding whether, and when, to make a claim, insureds should consider its value and should discuss with their insurance brokers the impact on future premium and renewal options.

What Are Government Authorities Doing?

There have been several legislative actions, to date, and more are likely.  At the federal level, some policymakers have promoted the creation of a federal program similar to the Terrorism Risk Insurance Act.  Though in its infancy, the proposal would require insurers to prospectively offer pandemic insurance, with federal backing. 

In New Jersey, legislators are discussing N.J. Draft Bill A-3844, which would apply retroactively and would effectively eliminate the virus/bacteria exclusions from existing policies.  There are myriad issues surrounding both the feasibility and legitimacy of any such legislation, but it is certainly something to watch. 

Keeping Up With Developments

Brouse McDowell will continue to update our clients and friends as these issues develop.  You can read all of our coronavirus related updates here.  In the interim, we are assisting our policyholder clients in analyzing their policies and potential claims arising from this pandemic, and we encourage policyholders to carefully review their policies to determine if coverage is available to them.