When disaster such as fire, explosion, or other event strikes and damages a business to the point of interrupting operations, the business owner will turn toward its insurance policy and business interruption coverage (if available) to alleviate the financial fall out. Business interruption policies generally provide coverage for lost income and extra expenses that a business sustains due to a “covered peril” (i.e. an explosion or fire) that “causes direct physical injury or damage” to the business’s real or personal property. Some business interruption policies also provide insurance coverage for indirect losses due to acts of “civil authority” or “supply chain disruptions.” Conversely, some business interruption policies contain exclusions for damages caused by a virus.
In the new COVID-19 world, businesses are now asking whether a pandemic is a “covered peril” or whether a government ordered shut-down triggers insurance coverage. Many businesses that have been deemed “non-essential” by state governments have either been closed or have had a substantial reduction in business revenue (such as restaurants providing only for curb-side or delivery). Businesses that have paid their insurance premiums for years have turned to their insurers for coverage and finding declination letters instead of open arms. Many insurers have taken the position that businesses closed by government action have not sustained damage that caused “direct physical injury or damage” to the business’s real or personal property. Insurance companies have argued that because the closure was to prevent exposure to COVID-19, the interruption is not a “covered peril.” Additionally, many business interruption policies contain a “viral exclusion” that insurers are invoking to deny coverage.
Several businesses have sought court relief upon learning that their insurers have denied coverage. Insurance coverage and bad faith lawsuits have already been filed in several states, including Illinois, California, and Missouri, challenging the insurers’ decision to deny coverage. Arguments advanced by the businesses include the claim that COVID-19 causes physical damage to the businesses’ real property because the virus physically infects and stays on the surfaces of objects or materials for weeks. Insurers will vigorously defend these coverage challenges and it is expected that litigation will be ongoing for years.
Because an insurance policy is a contract, the language contained in the policy itself is the best place to begin the coverage analysis. While reviewing your policy, some of the key questions to ask are:
If you have questions regarding your insurer’s coverage obligation with respect to the COVID-19 crisis, please contact: