The current COVID-19 pandemic has turned our world upside down in many ways and caused countless instances of business loss of income, ranging from minor inconveniences to complete shutdowns of businesses.
Many impacted businesses likely have insurance coverage for losses variously called “Business Interruption,” “Business Income” or similar terms. No doubt, they are wondering, will that coverage apply to a loss of income due to being impacted by the State orders which have caused them to reduce or completely cease business operations.
There is no clear answer to this and the answer ultimately will depend upon the language in the relevant insurance policy. The likely answer, however, is that it will be very difficult to make a successful claim.
Direct Physical Loss Or Damage To Property
Most such insurance policies are written to provide coverage when the business interruption stems from “direct physical loss or damage to property,” which physical damage is either at the insured premises or so nearby that some governmental agency restricts operations at the insured premises. So coverage generally requires some physical damage to property, such as a fire, tornado or the like. Since COVID-19 does not cause physical damage to property, it will be difficult to find coverage notwithstanding that the business unquestionably has business interruption and loss of income.
Over a decade ago, after business interruption claims were made arising out of a prior pandemic, most states required new insurance policies to include a specific endorsement that excluded damages arising due to “Virus or Bacteria.” Some policies will refer to this as Endorsement CP 01 40 07 06. Common phrasing would exclude any damages resulting from “any virus, bacterium, or other micro-organism that induces or is capable of inducing physical distress, illness or disease.” Insurance companies surely will cite this language, if it is in the insurance policy in question, to deny coverage for anything arising out of COVID-19.
A possible different angle to coverage could arise under the provision, common on Business Interruption policies, that provides coverage when a “Civil Authority” prohibits access to the insured premises. Most policies with such coverage, however, say that the action of the Civil Authority must arise from “property damage” somewhere, again meaning physical damage to property.
So, What Should I Do?
The first step is to read your insurance policy. Not all policies have Business Interruption coverage at all, so if your policy does not, then the inquiry is done. If there is basic coverage, the next step would be to see the precise language and see if there is at least a plausible argument that coverage exists. If so, then a decision needs to be made on whether or not to file a claim with your insurance company.
On the one hand, why not? Other than perhaps some modest legal fees for writing a letter, there is no cost to make a claim, and the insurance company will respond fairly soon with their answer to whether or not they believe coverage exists.
Also, there are some legislative proposals that have been floated, including in Ohio, which might require insurance companies to interpret policies in such a manner that there would be coverage even though there otherwise might not have been. Lawsuits are also being filed throughout the country and it is hard to predict what courts might conclude about these issues. For example, will it be possible that a court could hold that existence of the virus itself on the insured premises means that the premises did, in fact, suffer “physical damage”? Or if a specific nearby property had the virus itself present, might a court decide that that caused the Civil Authority to close your business and thus there is coverage? We simply do not know the answers to these questions
And all insurance policies have a requirement of timely notice to the insurance company for any claim, so the lapse of time could present a bar to a claim that might have otherwise been valid.
On the other hand, submitting any claim to an insurance company is a serious matter and should not be undertaken lightly. Some insurance companies frown upon what they consider meritless claims and take that into account when the next renewal comes around, perhaps impacting premiums or even the decision to renew at all. And given the difficulties outlined above, it is possible that the claim will be futile and you will have wasted time and money pursuing it.
Also, while submitting a claim initially is fairly easy, before the insurance company takes any other action it may request detailed documentation of the amount of the claim. Providing such detail could be a time-consuming and expensive proposition, which might be in vain.
This decision may be influenced by the size of your potential claim, which is likely still unknown since as of this writing we have no idea when businesses will even be allowed to resume normal operations, and then no idea how much longer after that until business is restored to its pre-COVID-19 levels. Perhaps some businesses will have all or most of their potential claims covered by other government grants or forgivable loans, thus meaning that their damages were covered by that and there is no need to pursue a difficult insurance claim. This may point to a “wait and see” approach.
If you would like to at least look into this question, please let us know. The first step would be to obtain a copy of your insurance policy for our review. After that, we can discuss the pros and cons of proceeding.