Almost every business and industry has been impacted by the COVID-19 pandemic. Mandatory closures, shelter in place orders, travel embargoes, and disruption in manufacturing supply chains are just a few examples. Insurance industry sources have estimated the pandemic-related business interruption losses at $250 to $300 billion per month.

The question on the top of every business owner’s mind: can I make a claim to my insurance company for business interruption losses caused by the pandemic? The answer is yes…maybe.

Direct Physical Loss or Damage

First, a very careful examination of the policy language is necessary to determine if your losses will be considered a compensable claim. Most property damage/business interruption insurance policies require that the alleged loss be caused by “direct physical loss or damage” at the premises or covered property. At first blush, this phrase might seem to exclude many pandemic-related claims because the losses do not include physical damage to the property in the typical context.

However, there is a growing body of argument and some limited precedent to support the conclusion that the “or” in the phrase “direct physical loss or damage” should be construed to mean that physical damage to the property is not required. 

Recently filed lawsuits have argued that if the property cannot be used for the purposes it was intended for or was otherwise unsafe to use for its intended purpose, then damage to the property has occurred, and a covered loss has occurred. Alternatively, some litigants are getting creative by alleging that surfaces that have been exposed to coronavirus are “physically” damaged. Until the courts provide more guidance, we can expect these arguments to continue to be pursued.

Civil Authority Provision

Business owners should also be aware of coverage extensions by “civil authority” provisions. The typical civil authority provision covers loss of business income due to actions by a civil authority that prohibit access to the covered property, due to direct physical loss of or damage to property at locations other than the insured location, but within a certain geographical range.

Again, there is a growing number of businesses and lawsuits arguing that mandatory closures and shelter in place orders should trigger civil authority extensions. These coverage extensions contain the same express limitation that the losses must be caused by “direct physical loss or damage” making the arguments similar as above.

Virus and Bacteria Exclusion

The presence of a virus and bacteria exclusion in the insurance policy may also be outcome determinative. The typical virus and bacteria exclusion states that the insurance company is not obligated to pay for any loss or damages “caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” 

If your policy has this exclusion, you will have a difficult time proving a valid business interruption loss claim. However, some states, including New Jersey, Massachusetts, and others, are considering legislation that would nullify, or partially nullify, virus and bacteria exclusions. It is not clear how this Hail Mary attempt will ultimately play out in the courts, but it is surely going to spawn a fair bit of litigation. 

Make A Claim

Perhaps the most important thing to remember is if you think you might have a claim, you should go ahead and make a claim. Business interruption loss claims usually have very specific requirements regarding timing, notice, and substantiation of claims. A failure to comply with the requirements in a timely manner could result in losing all rights to make a claim. Read the policy carefully and ask your lawyer for guidance.