Insurance Alert: Should I Submit a Business Interruption Claim for COVID-19 Income Loss?
By Jodi Spencer Johnson & Amanda M. Leffler on March 31, 2020
We have, and continue to, release advisories on coverage prospects for COVID-19 related claims. You can find those on our Coronavirus Resource Page. Here, though, we are taking a minute to address the number one, more practical question we are hearing: should I submit a business interruption claim for COVID-19 related income loss? The answer?
Well, it’s complicated.
Undoubtedly your inboxes are overflowing with articles, blogs and notices regarding potential insurance coverage for losses you may be experiencing now or may experience in the future related to COVID-19. And the messages run from one extreme to the other. Some policyholders are being told not to even bother filing a claim based on COVID-19; they are not losses arising from “direct physical damage.” Some policyholders are being told to file every claim regardless of prospective coverage defenses; or, to at least file the claim in order to preserve it.
The right answer is probably somewhere in between. The policy and facts matter, the governing law matters, including developing legislative efforts, and there are practical considerations that should be vetted when policyholders weigh the costs and benefits related to making a claim for business interruption loss due to COVID-19. Below is a checklist to help policyholders navigate the decision of whether to submit a claim for business interruption loss arising from Coronavirus.
- The policy. First, review your policy or have a coverage attorney review it to assess the strength of a coverage claim and confirm any conditions that may impact a coverage claim. This includes:
- Strength of the claim – does the policy have a virus exclusion that applies? Does the policy have broad or narrow civil authority coverage? Depending on the wording of the policy, your prospects of coverage may be stronger or weaker.
- Notice conditions – does the policy require notice within a certain period of time after the triggering event? If so, err on the side of providing notice in order to comply and eliminate another potential barrier to coverage.
- Time limitations – does the policy restrict the time within which coverage, if available, will be provided and, if so, how does it apply to your claim? Most business interruption forms allow coverage for income loss only during the “period of restoration” and/or for a certain number of weeks after coverage commenced. This will impact the amount of recovery you will be eligible for even if coverage is confirmed.
- The claim. Second, what are the facts related to your loss?
- Was your property actually exposed to the virus? Was a nearby property exposed? If either answer is yes, the claim is more likely to be successful.
- If your property or a nearby property was not actually exposed, was your business subjected to a broad governmental order mandating closure due to exposure to the virus? If so, there is still a good argument in favor of coverage. This argument is currently being tested in the courts as exemplified in recent complaints filed in Louisiana, California, and Oklahoma.
- How large is your loss? Is it a complete loss or partial loss of income? Losses that are total and/or a substantial weigh in favor of making a claim.
- The governing law. Third, what is the governing law in your jurisdiction regarding what constitutes “direct physical damage” as applied to virus or other contaminant/contagion type claims?
- Some jurisdictions have more favorable case law in terms of whether the presence of contagions or toxins constitutes “property damage.”
- Some states are trying to pass legislation that would favor coverage - but these bills are and will be subject to significant challenges based on constitutional grounds as well as opposition from the insurance industry.
- Practical considerations. Finally,there are business and practical considerations to consider when it comes to making an insurance claim for COVID-19 losses. If your claim is weak based on the facts and/or policy language is it really worth making a claim?
- Making a claim may negatively impact your future premiums or ratings with the insurer.
- If you make a claim, the insurer will investigate and may issue significant requests for information that will require time and money to respond to, which will subsume resources.
So our “answer” is, 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 and, of course, you should carefully track all damages that you have suffered.
If you need help, we are here, albeit remotely.