Companies should consider notifying their insurers of business interruption losses in the wake of the COVID-19 crisis. While the insurance industry is pushing a general message that this type of loss is generally not covered under most commercial property policies, the dust has not yet settled. In fact, insurance policy terms and conditions differ substantially, and the availability of coverage depends on the policy language. Policyholder advocates have filed many lawsuits challenging this notion, and legislators in several states are working to pass laws requiring insurers to pay some of these claims in certain circumstances. Prudent policyholders may wish to have experienced counsel review potentially applicable insurance policies, and to notify losses even if it is not clear whether coverage applies to preserve coverage that may exist.
Property Damage Requirement – Or Not
One issue likely to be a central focus of litigation over COVID-19 business interruption claims is whether the insurance policy requires specific, tangible damage to the insured’s property to trigger coverage and, if so, whether the presence or suspected presence of the virus so qualifies.
Although insurance policies may differ, some commercial property policies provide business interruption coverage that does not require actual damage to the insured’s property. For example, some policies extend business interruption coverage when access to the insured’s property is restricted for various reasons. One common extension that covers insureds’ business interruption losses when access to the insureds’ property is blocked by order of a civil or military authority may not require actual damage to the insured’s property.
Even if tangible damage to the insured’s property is required, the presence or suspected presence of the virus may qualify as tangible damage. Many commercial property policies are “all risk” policies, which are intended to cover any risk that is not otherwise excluded (as opposed to a “named peril” policy, which is intended to cover only risks that are expressly listed in the policy). The presence or suspected presence of the virus may fall into this broad coverage.
Applicability of Any Virus Exclusion
Another major issue in the litigation over COVID-19 business interruption claims may be the applicability of exclusions in some (though not all) property policies that insurers could argue bar coverage for losses arising from the presence of a virus. If an insurance policy contains such an exclusion, the exclusion may not apply for various reasons. For example, the exclusion may not apply to all extensions of coverage. And insurers generally bear the burden of proving that any particular loss falls within the scope of an exclusion. As a result, all exclusions should be read carefully by experienced coverage counsel.
Proposed Legislation
Legislators in several states have proposed bills requiring insurers to pay business interruption claims even if the policy would not otherwise require coverage. In particular, legislators in New York (A. 10226), New Jersey (A-3844), Louisiana (H.B. 858, S.B. 477), Massachusetts (S.D. 2888), Ohio (H.B. 589), and Pennsylvania (H.B. 2372) have introduced such bills. Legislators in other states may follow.
Except for the bill in Louisiana, these bills would apply only to policies covering small businesses with 150 or fewer employees and the insurers paying such claims would be eligible for reimbursement from the state. If passed, these bills will likely face constitutional challenges. It may be better to give notice in the event a bill is passed and survives scrutiny, than to assume no coverage and later be stuck with late notice.
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Companies should carefully review their insurance policies with coverage counsel and consider whether to notify any business interruption losses in the wake of the COVID-19 crisis.
