Business Interruption Insurance Coverage and COVID-19

In this time of massive economic downturn, stay-at-home orders and required closures of non-essential businesses, business owners are looking to their commercial insurance policies to provide coverage for their losses. Specifically, insureds are looking to apply the business interruption coverage of their policies. Of course, each specific policy must be read and applied to the insured’s specific situation, but the pandemic certainly raises issues that will need to be addressed by many insurers and their policy holders.

Business interruption coverage provides insureds with protection for a reduction in income resulting from a necessary suspension in operations. Often, this coverage applies when a business sustains loss of income due to physical damage to the property, such as from a fire or flood. Business owners filing claims arising out of the COVID-19 crisis are finding that their insurers do not interpret “physical damage” to include damage caused by the pandemic. Insureds have already begun filing lawsuits across the country, challenging this interpretation. They argue that possible COVID-19 contamination constitutes physical damage triggering coverage.

Some policies specifically address loss and damage from a virus, either in their exclusions to coverage or in their endorsements expanding coverage. Although many commercial policies contain coverage exclusions for damage caused by a virus or bacteria, insureds are examining these exclusions for ambiguities that may be construed in their favor. Disputes are also occurring over the interpretation of endorsements referencing losses caused by a virus. In one such case, SCGM v. Certain Underwriters at Lloyd’s, a theater chain filed a declaratory judgment action in The U.S. District Court for the Southern District of Texas against its insurer Lloyd’s of London, for its anticipated refusal to provide coverage under a “Pandemic Event Endorsement.” Lloyd’s has asserted that COVID-19 is not specifically listed as a covered disease on the endorsement while SCGM argues it is a variation of SARS-CoV, which is listed.

Another coverage contained in many policies is “civil authority” coverage. This coverage typically applies when a civil authority (i.e., a state or local government) issues an order prohibiting access to a business due to direct physical damage or loss to a property other than the insured premises. In the past, insureds have sought this coverage for situations such as evacuation orders for impending hurricanes. The judicial interpretations of the policies at issue in these prior disputes will likely be helpful in evaluating claims for civil authority coverage arising out of civil orders issued in response to the spread of COVID-19.

As disputes and lawsuits over coverage are increasing, congressional members are attempting to intervene and state legislators are proposing legislation requiring insurers to provide coverage for COVID-19-related losses. Of course, any such legislation will likely be challenged with further litigation for affecting contractual obligations.

Whether a policy will provide such coverage for lost income as a result of the COVID-19 outbreak will depend on the specific language in each policy, and, ultimately, the judicial interpretations of such language. The attorneys at Danna McKitrick, P.C. are monitoring these developments to assist clients with insurance coverage issues at this critical time.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.

(c) vaeenma www.fotosearch.com