Business Interruption Insurance Recoveries Due to COVID-19
Many companies carry business interruption insurance as a component of their first-party property insurance or as a freestanding policy. Such coverage protects against losses sustained during periods of suspended operation due to various events and damage. Although there is no doubt that operations and business has been suspended across countless industries in recent months, business interruption claims as a result of COVID-19 will prove difficult under standard policy language.
Most policies pay for business interruption arising from physical damage to the covered property. In most cases, contagious diseases do not constitute property damage, especially when passed from person to person, although creative policyholder attorneys are already testing the nuances and language of this traditional interpretation. For example, actual contamination of tangible property (as distinct from fear of contamination) arguably constitutes property damage for insurance purposes. In addition to the physical damage component, many policies have a virus exclusion which attempts to foreclose coverage for damages caused by viruses or other microorganisms. Another hurdle for insureds involves the cause of their business interruption. The vast majority of businesses closed due to the COVID-19 pandemic did not do so because of the direct and verified presence of coronavirus at their insured property, but rather because of governmental orders to shut down.
Insurance companies and organizations across the country have attempted to dissuade business interruption claim attempts before they get off the starting block. Several state insurance representatives have even joined the discussion. An April 17 letter by North Carolina Insurance Commissioner Mike Causey was perhaps the most direct.
“Standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of the potential losses,” Causey said. “Insurability requires that loss events are due to chance and that potential losses are not too heavily concentrated or catastrophic. This is not possible if everyone in the risk pool is subject to the same loss at the same time.”
While business interruption insurance may not be an easily ascertainable way of obtaining relief from the current pandemic, this is not to say that a claim should be withheld. We recommend a review of the policy terms in this regard and consideration of a claim submission since coronavirus-related insurance claims for business interruption losses will involve complexity and uncertainty above and beyond those present in a typical business interruption claim.
If you have questions or would like to discuss this topic in more detail, reach out to a member of our Insurance Coverage Services team.
This update provides general information and does not provide tailored legal advice or establish an attorney-client relationship.