As the COVID-19 pandemic continues, government statistics and models suggest the disruption will continue for the foreseeable future. You might be wondering whether your business’s insurance policies provide relief for economic losses brought on by the coronavirus outbreak. Because you may have been told that you will not be covered for business interruption losses, you decided not to make a claim. With so much uncertainty, it is now more important than ever to review your policies.
Physical Damage Claims
Commercial property policies typically provide coverage for business interruption losses that result from “direct physical loss or damage.” Some policies also include “civil authority coverage” if a governmental order prohibits access to a business due to “physical damage” within the vicinity.
Relying on the physical damage threshold, many insurance companies have issued statements that virus or bacteria transmission and global pandemic will not qualify for business interruption coverage. The law, however, is not as settled as insurers assert.
There are two schools of thought on the physical damage requirement. One line of cases holds that unless there is an alteration of the physical structure of a building, there is no direct physical loss or damage. The other line of cases holds that if the property is rendered unusable or uninhabitable, that is enough to constitute physical loss or damage. There will no doubt be litigation of this issue in the COVID-19 context; for now, the best practice for any business is to evaluate your insurance coverage and consider placing your insurance carrier on notice of your claim.
Claims Made in Advance of Possible Legislation
Given the unprecedented disruption caused by COVID-19, it is entirely possible that states might consider legislation that impacts the availability of insurance coverage for business interruption losses. Ohio, Massachusetts, New Jersey, and New York have already introduced bills that require insurers to cover damages arising from global virus transmission or pandemic despite policies excluding such risks.
The Small Business Association of Michigan has encouraged the state legislature to use the business interruption insurance system to cover losses small businesses might incur. This proposal has not been officially accepted, but it underscores the importance of keeping accurate records of your losses so you can file a claim later.
Preserve Your Right by Giving Notice Now
Insurance companies often refuse to pay claims when insureds are late in giving notice. You should consider giving notice now about circumstances that may give rise to a loss, even if there are doubts about whether it will be covered. Doing so could help preserve the opportunity to pursue coverage later.
Get Advice from Experienced Business Lawyers
It is impossible to determine what coverage actually may be available for your business without carefully examining the specific policy language and facts surrounding your loss. If you have questions about business interruption insurance or filing a claim, seeking legal counsel is essential.
The attorneys in Kreis Enderle Business Law Practice Group are experienced in handling insurance claims, can analyze your coverage, and advise you on the best course of action. We are working remotely during the coronavirus emergency and can conference with you by telephone or video.