SPECIAL REPORT: COVID-19 Losses and Claims Insurance Coverage

In the wake of the economic disruption caused by COVID-19, many businesses are looking for ways to recoup some of their losses and what role their insurance companies will play in providing coverage for their lost income.

Most businesses carry Commercial Property Insurance, which may include business interruption coverage, contingent business interruption coverage, civil authority coverage, ingress/egress coverage, or event cancellation coverage which may provide coverage for lost profits or additional expenses in the instance where a business operation is interrupted due to “direct physical loss or damage.” To the property of the insured. Each of these coverages is explained below. There may be other lines of coverage not mentioned here that warrant recovery under individual policies. The terms of insurance policies vary. While most policies include a standard grant of coverage form, standardized terms may be changed or amended by various endorsements or exclusions to the policy. As such, policy language is crucial, and the only way to determine whether a policy will cover a claim is to carefully review the terms and conditions of that policy.

Business Interruption Insurance

Business interruption insurance can help replace lost income after there has been an interruption to a business’s operations that is caused by “direct physical loss or damage” to the covered property. Courts across the country have varied on what constitutes the trigger of coverage for “direct physical loss,” and under some court rulings a pandemic or virus may be covered. However, in recent years, many insurers began including express exclusions for virus or pandemic related losses, while other policies actually contain communicable disease coverage which may cover business losses due to COVID-19. Depending on the language of the policy, communicable disease coverage may negate a virus exclusion or physical damage trigger. The defined terms and express language under these lines of coverage must be reviewed carefully to determine how they would apply in this particular situation or if any sublimits (limits of coverage which are different than the policy limits stated on the declarations page) apply to such losses.  

Civil Authority Coverage

Policies may also contain civil authority coverage. Civil authority insurance is generally intended to apply to situations where access to an insured’s property is prevented or prohibited by an order of civil authority issued as a direct result of physical damage to property other than the insured property. Some state and local governments have specifically referenced property damage in their executive orders, which will likely influence the outcome of coverage analyses under commercial property policies. It is also important to note that at least some policies are written without a “physical damage” requirement, which may in certain situations give a policyholder a stronger argument that coverage has been triggered. 

Contingent Business Interruption

This coverage applies when damage occurs to property owned by others that your business depends upon to operate. Depending on the terms of coverage, contingent business interruption may cover the policyholder’s lost profits that result from loss or damage to the property of either a supplier or a customer or client. Again, policies typically require direct physical loss or damage to that property, and a careful review of the policy is necessary.  

Ingress/Egress Coverage

Ingress/egress coverage is designed to pay for a loss of profits or other economic losses due to the suspension of access to the insured business. In some policies the prevention of ingress and egress must be caused by a physical obstruction. Depending on the policy language, a quarantine order imposed on a particular locality may trigger this coverage.

Event Cancellation Coverage

Organizers of large events such as concerts, music festivals, sporting events, and trade shows often purchase event cancellation insurance policies. Such policies vary considerably and careful attention to policy terms is critical. Some but not all cancellation policies will contain communicable disease (pandemic or epidemic) exclusions. Under some cancellation policies coverage will turn on whether a lawful order prohibited the event from taking place. In some situations, an insurer may consent to cover a canceled event if the cancellation will mitigate losses for both the policyholder and insurer. In those situations it may be necessary to obtain the insurers consent prior to cancelling the event.  

Proposed Legislation and Pending Lawsuits

Many states have now proposed legislation that would mandate insurers to cover COVID-19 related losses under their business interruption policies. Concerns among the insurance industry is that legislation like this could place too much financial strain on the insurers that didn’t price for virus related losses. There are also constitutional concerns as the Contracts Clause of the Constitution places limits on a state’s ability to interfere with private contracts. Although these bills have been introduced they have not yet been passed, and if they are passed they will likely be challenged by the insurers.

In addition to proposed legislation, many insured businesses who have been denied coverage have filed lawsuits against their insurers. At least a dozen different lawsuits have been filed by Policyholders around the Country, including a number of Chicago based restaurants. Policyholders are arguing that a virus constitutes physical loss and damage and the fact that the deadly virus physically infects and stays on the surface of objects or materials for a prolonged period of time constitutes physical loss or damage to the property. To support their claim, many policyholder’s are pointing to the state and local authorities, and public health officials from around the Country that are acknowledging that COVID-19 does cause direct loss and damage to property. Colorado has issued a Public Health Order indicated that COVID-19 “contributes to property loss, contamination and damage”. The City of New York issued an Emergency Executive Order which states that the “virus physically is causing property loss and damage”. Several state, county and municipal officials have issued similar orders acknowledging property loss or damage caused by COVID-19, including Florida (Broward County), Washington, Indiana, New Mexico, North Carolina, California (Los Angeles), and Louisiana (New Orleans).

SATC|LAW is closely monitoring legislative responses and other developments related to COVID-19, and we will provide updates as necessary.

The above summary provides a general summary of insurance coverage considerations. It is not an analysis of any particular policy. This summary should not be relied upon to determine how any specific insurance carrier would respond to specific claims. If you have any questions or need additional information regarding insurance coverage, please contact us.

CONTACT

Robert D. Tepper, Esquire
rtepper@satclaw.com
Mobile: (312) 303-3116

John W. Campbell, Jr., Esquire
jcampbell@satclaw.com
Mobile: (312) 391-3126

Websites:
https://satclaw.com/
https://www.satcsolutions.com/