Julie A. Cardosi
BUSINESS INTERRUPTION & RELATED INSURANCE CONSIDERATIONS DURING THE CORONAVIRUS PANDEMIC
Many business owners have become increasingly frustrated by disputes during the coronavirus pandemic with their insurance companies over whether their commercial insurance policies and business interruption insurance coverage extend to certain business losses. As a result, there is a significant uptick in litigation against insurance carriers by businesses whose claims include that their insurance policies cover losses sustained from state and local closure orders (“shut-down” or “stay-at-home”) during the pandemic.
Generally, businesses assert that their policies should cover their business losses from pandemic-related closures. Insurers disputing coverage, however, assert that the policies only cover losses sustained due to direct physical damage to property and not to losses incurred from business disruption due to the public health crisis brought on by the pandemic. Additionally, some policies contain exclusions for losses resulting from viruses or pathogens, emboldening insurers to argue the general commercial property terms were not meant to cover these losses.
In some cases, businesses have attempted to argue that the presence of COVID-19 on their properties caused them to close to sanitize and disinfect, resulting in direct physical harm to their properties. Others have asserted that government-mandated shut-downs have directly and negatively impacted their use of their properties. These claims, however, have resulted in varying outcomes at procedural stages, with few dispositive rulings on the merits. How courts will ultimately rule in these cases remains uncertain.
Dealerships should thoroughly review their insurance policies and related coverages. Many dealerships may find that their commercial property insurance policy provides coverage to offset their lost income and extra expense under certain coverages, such as business interruption, civil authority or extra expense.
Business interruption coverage generally covers a company’s lost profits and certain continuing expenses following a covered loss (e.g., fire causing business to be closed for repairs). Such coverage might pay for the company’s loss of earnings or certain continuing expenses until the business reopens. However, as noted above, coverage issues for this type of insurance arise because many policies cover lost profits and continuing expenses attributable, for example, to “direct physical loss or damage” to “insured property” at the “insured premises” caused by a “covered cause of loss.” These terms should be defined in the policy. If the policy contains a requirement that the loss is due to a “covered cause of loss”, some specific covered causes of loss may be listed (e.g., lightning, fire, etc.). Other policies may cover “all risks” of loss. As relates to COVID-19, it may be easier to obtain coverage under an “all risks” policy than one that covers specified causes of loss.
If the dealership’s policy includes civil authority coverage, it may extend to loss of earnings and certain continuing expenses when a civil authority prohibits access to, ingress to, egress from, the place of business because of a covered cause of loss, within a certain distance of the place of business and subject to certain time limits for when the coverage begins and ends. The policy may include extra expense coverage which generally covers extra expenses (e.g., cleaning/disinfecting expenses). Extra expense coverage may depend on whether the expenses result from direct loss or damage to covered property.
Many policies include exclusions for viruses, pathogens, etc. Whether such exclusions apply, however, will depend on the precise policy language. Such exclusions may be the subject of legal challenge. Some argue that exclusions that do not explicitly refer to viruses should not be used to exclude or deny coverage. In a related challenge, a virus is also not a “pollutant”, “bacterium”, or “fungi”, for purposes of excluding coverage and businesses might consider challenging exclusions or coverage denials under policies that do not specifically exclude “viruses” or “pathogens”.
Whether the dealership is able to fully decipher the parameters of its coverages, and policy provisions and exclusions, if the business reasonably believes it has a claim for coverage for losses sustained as a result of forced closure during the pandemic, it is important to provide prompt written notice of such claim to the insurer to avoid denial of coverage based on lack of timely notice. Businesses should consult with their agents and counsel regarding questions of coverage.
More needs to be done in this area to protect businesses. Lawmakers in several states are considering requiring insurers to cover business interruption losses related to COVID-19 regardless of policy exclusions or physical loss requirements, including relief for businesses that had policies in place at the onset of the pandemic with reimbursement incentives for insurance companies.