Business Interruption Coverage
Business Interruption Insurance or contingent business interruption coverage is a type of policy which covers obviously interruptions in your business. Business interruption coverage is often part of a commercial property policy and is not usually sold independently. This type of insurance policy covers against economic losses resulting from a business not being able to operate due to one of the covered events listed in the policy. Your business interruption insurance policy should list or describe the various types of events that qualify your business for a claim. I am positive that no policy will list COVID 19 or the Corana Virus Pandemic specifically as a cause for a claim, instead an argument must be made as to why the policy and those provisions which apply require the insurance company to provide coverage. Therefore, it is important to have your policy reviewed by an attorney to determine whether a claim can be made under the existing terms of the policy.
Viruses like COVID 19 or Corona Virus
Viruses or bacterial outbreaks are typically not insured unless specifically added by an endorsement which is basically an add-on provision to the policy. Some newer policies even specify and exclude viruses and disease expressly as insurance companies saw claims in other parts of the world during the SARS and other virus or bacteria outbreaks.
What do you have to show to get coverage?
Business interruption coverage requires a showing of losses linked to an event that is covered under the policy. It can get complicated when you have multiple causes, for instance, the Corona Virus and the building or shopping center being forced to close and whether it is deemed covered or uncovered under the policy. A business interruption event is usually defined as a physical loss (possibly destruction of merchandise) in response to a physical event (natural disasters or theft). With that said, in 2002-2003, the SARS outbreak led to million of dollars paid by insurers, including a $16 million dollar claim by the hotel chain Mandarin Oriental International. As such, the requirement for physical damage was weakened by cases such as the Mandarin’s and opened the door to making legal challenges.
Business interruption policies normally include an endorsement excluding coverage for viruses or epidemics but more recently there have been some policies which have pandemic specific coverage for losses as a result of government mandated closure and diminished revenue as a result of quarantine. For instance, in England the Wimbledon Tennis tournament chose to cancel its tournament completely instead of postponing because in part they had a pandemic specific policy which provided for more than $200 million dollars in coverage.
There has been a public outcry for insurance companies to cover Corona virus related claims for business interruption. President Trump recently chimed in suggesting that insurers should pay or encouraged them to pay some business interruption claims related to the corona-virus pandemic. Several states have introduced bills to retroactively protect businesses and require insurance companies to cover claims including nullifying viral exclusion clauses. These bills are far from being passed and will most likely produce heated debate in government chambers and if passed will produce significant legal challenges.
Looking at the SARS epidemic for some clarity, policy holders at that time argued that government closures constitute “physical damage,” in that businesses were forced to shut down and therefore the policies should cover there losses. Case law from the SARS epidemic seems to suggest that the courts will side with policy holders or at least are the sympathetic favorite.
Conclusion
Business interruption claims based on closures for COVID 19 OR Corona Virus will receive significant blow back from the insurance companies and will definitely be an uphill battle for businesses making claims. Depending on the individual policy, a claim may be worth it for the business depending on the terms and the arguments that can be made. At the very least, you should have an attorney review the policy to make a qualified analysis. The attorneys at our firm are ready, willing and able to review your policy and provide a free legal review.
Javier L. Gonzalez, Esq.
Contact me at: Jgonzalez@gr-law.net