Insurance Coverage Considerations in the Age of COVID-19

By now, it is beyond cliché to note that we are in uncharted waters. For our business owners and managers alike, we wanted to offer some guidance for insurance-related issues as you consider whether to pursue coverage for COVID-19 related claims.

 Initially, Determine Whether to Report a Claim

First and foremost, it is important to realize that insurance coverage for pandemic-related losses is uncertain. If you believe that your business may have a claim, as with any insurance inquiry, the initial step is to review your organization’s policy (or policies). As you review the terms of your policy to determine whether you have a potential claim, examine the exclusions and endorsements. Do not refrain from reporting a claim simply because an exclusion may apply. Remember that exclusions are narrowly construed. The existence of a potentially applicable exclusion should not prevent you from reporting a claim to your carrier.

What Next?

If you believe that you have a claim, or at least a potential claim, it is imperative that you give notice of the potential claim to your insurance carrier as soon as practicable. There is no “one size fits all” approach to claim reporting. Rather, your claim reporting responsibilities will be contained within the policy language. Most likely, you will be able to find your policy’s claim reporting obligations within the policy declarations section (most commonly, the first few pages). Note that the declarations will also include other important information for your evaluation. For instance, as you consider the amount of your loss, remember that for any potential coverage, you will have to exceed the deductible, or self-insured retention, where applicable.

Will Business Interruption Coverage Save the Day?

Creative insureds (and their counsel) will undoubtedly seek coverage under all types of policies for pandemic-related losses. Remember that any potential coverage depends on (1) the terms of the specific policy at issue, and (2) the facts of the claim. For the purposes of this article, the focus is on the policy that would appear most likely implicated by the crisis: business interruption coverage.

Typically, business interruption coverage is a part of a business owners insurance policy. Business interruption coverage provides coverage for an insured’s lost profits, as well as the business’s extra expenses incurred due to the covered peril. In most cases, business interruption coverage is triggered when the insured’s claim results from “direct physical loss of or damage to” to the insured’s property. Whether COVID-19 causes “direct physical loss of or damage to” a business is the sixty-four thousand dollar question. Already, news of business interruption claims has started to spring up. On March 24, the Chickasaw Nation filed suit against a group of insurance companies in Oklahoma state court seeking a declaration that losses it is incurring from shutting down its casinos due to the pandemic are covered by its business interruption insurance. On March 27, Thomas Keller, a prominent California restauranteur and owner of both the French Laundry and the Bouchon Bistro in Napa Valley, filed a similar suit. Certainly, there will be a proliferation of these types of claims in the coming days. It remains to be seen whether they will be successful.

Most business interruption policies will also contain a Virus Exclusion, ISO Form CP 01 40 07 06. The Virus Exclusion could be preclusive to a COVID-19 insurance claim, as it states that the insurer “will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease.” COVID-19 is a virus and, as such, would appear to be excluded from coverage in that instance.

Recent Legislative Efforts

To date, three states have taken legislative action seeking to compel insurers to provide business interruption coverage to their respective insureds. New Jersey was first, introducing Assembly Bill 3844, which would effectively rewrite business interruption policies to include coverage for the ongoing pandemic. However, the New Jersey bill was subsequently pulled before a vote, such that it is now held indefinitely. On March 24, Ohio and Massachusetts introduced bills of their own.

Ohio’s House Bill 589 is a bill “[t]o require insurers offering business interruption insurance to cover losses attributable to viruses and pandemics and to declare an emergency.” Section 1 of H.B. 589 provides that “(B) Notwithstanding any other law or rule to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this state on the effective date of this section, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic during the state of emergency.” If passed, H.B. 589 would appear to be a life preserver for underwater insureds, but carriers would surely test its constitutionality in court.

Massachusetts’ Bill SD 2888, “An Act Concerning Business Interruption Insurance” provides in its Emergency Preamble that “[t]he deferred operation of this act would tend to defeat its purpose, which is to require certain insurance companies in the commonwealth to provide business interruption insurance coverage to their insured in connection with the COVID-19 pandemic, therefore it is hereby declared to be an emergency law, necessary for the immediate preservation of the public safety, health and convenience.” SD Bill 2888 goes even farther than H.B. 589 by explicitly overruling the Virus Exclusion, stating in pertinent part that “no insurer in the commonwealth may deny a claim for the loss of use and occupancy and business interruption on account of (i) COVID-19 being a virus (even if the relevant insurance policy excludes losses resulting from viruses); or (ii) there being no physical damage to the property of the insured or to any other relevant property.” Without question, insurers would test the viability of this law in court as well, most likely arguing that retroactively changing policy terms would deprive insurers the benefit of their bargain at the time they agreed to provide insurance to their policyholders.

Given these recent actions, it appears likely that other states will join the movement and introduce similar legislation as well.

Conclusion

Insurance coverage is never a given. If you believe that your business may have a potential claim, it is important to review the terms of your policy. If you need assistance, please do not hesitate to contact the attorneys at SFBBG.

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[DISCLAIMER – This information is solely for information purposes and does not constitute legal advice. Please contact SFBBG with all legal questions]