The coronavirus has impacted more than an individual’s health and well-being. In the wake of this global pandemic, many businesses have been impacted — whether it be from an order from local or state government or because it has been directly hit with employees or customers who were diagnosed with COVID-19.

Businesses have had to grapple with the distinction between “essential” and “non-essential” and alter their budget to purchase PPE and other sanitary items. Projections for revenue for 2020 were obliterated in the process leaving business owners with difficult decisions in terms of whether it is worthwhile to remain open in a limited capacity, temporary closure, furloughs, layoffs, bankruptcy, or in some cases going out of business. The Payroll Protection Program instituted by the Federal Government has provided a temporary salve, however, in many cases business losses continue in big and small ways.

Business Interruption Insurance

The natural offshoot of this business and economic disruption for businesses is whether their business insurance coverage, for which its owners paid premiums month in and month out, ‘owe’ for business income lost, and additional expenses, due to a viral pandemic such as to COVID-19.

Multiple insurers are facing federal class action lawsuits for denying business interruption claims. Further, claims by business owners for business disruption losses have increased exponentially. This post endeavors to examine some of the issues that will be at the forefront for business owners, and carriers, as it pertains to COVID-19.

Coverage

Most importantly, businesses should request a full copy of their insurance policy and review the policy carefully. There may or may not be multiple avenues for recovery. Insurers may have valid exclusions, and insurers will have to make the same analysis to determine whether there is a coverage due to business disruption caused by COVID-19.

There are different types of policies that business owners may have. Most typically, a business may be insured under a Commercial Liability Insurance Policy with an endorsement for business interruption. There are also a number of different policies which also may provide business interruption.

Where to Look in your Policy

Your policy may have coverage for the scenario when a civil authority shuts a business down; which exist to insure the loss of business due to government actions or orders prohibiting access to the business.

Alternately, there may be coverage for business interruption due to “direct physical loss of or damage to property.” An insurance company may make a denial based on lack of “property damage”, even though there is a documented loss. Therefore, businesses may argue that while their business was forced to close due to governmental stay-at-home or “non-essential business” orders, but have not encountered an actual contamination or “damage to property” due to covid-19, their claim would be based on property loss and not damage. In other words, if a business has lost the use of its property then it’s a direct physical loss, thus potentially triggering coverage.

Many policies have a “virus exclusion” however, businesses are typically closing temporarily due to government order and not the virus itself. These provisions are often interpreted by courts narrowly. Again, is there physical damage to the property or simply a loss?

Insurance Carrier Perspective

Unless a policy was designed to cover a virus or more aptly a pandemic, then it doesn’t cover it. Did a business owner specifically state and bargain for coverage to include coverage for viruses or a global pandemic, and then the insurance company put in that coverage? If that didn’t happen, then there is an argument to be made that the policy was not designed or intended to cover the virus or pandemic. Further, if there is a “virus exclusion”, it would appear to be a clear cut exclusion.

Losses

Interruption insurance may cover revenue your business would make if the business was still open. It is wise to look at the monthly revenues, tax returns, bills, invoices, leases, deeds, and contracts prior to the COVID-19 disruption, and compare it to after. In many cases these losses are continuing. Your policy may cover operating expenses such as revenue, mortgage or lease payments, loan payments, payroll etc.

Business income is based on the net income of the business prior to the loss and the likely net income of the business if COVID-19 did not occur. Additionally, it is based on the operating expenses necessary to resume the business operations as it existed just prior to the loss or damage.

Your policy may also cover necessary extra expenses — expenses your business did not contemplate or have prior to this loss. This would be PPE such as masks, gloves, sanitizers and similar items that perhaps your business had to purchase due to COVID-19. These expenses “exceed” normal business expenses.

What to do now?

If you are a business owner that has suffered business losses, filing a claim immediately is the best way to preserve a legal claim. Selecting legal counsel to assist in analysis of your policy and making a claim is highly recommended.

Where does this end up?

Business interruption claims will be fought in the courts as long as the global pandemic and resulting shut downs and stay at home orders continue. Business owners may believe that there is coverage for their business losses, and insurance companies may believe that there simply is no coverage for COVID-19 or a pandemic thus resulting in a denial. By in large, most claims have been denied at this point. Ultimately, these disputes will result in contractual and declaratory actions and lawsuits over what is covered and what is not covered.

Also, this “battle” will play out in the legislative arena. In multiple states, legislation has already been introduced requiring insurers to cover losses for stay at home orders brought on by this pandemic.

Should you have any questions, I may be reached at heath.gelman@henlaw.com or by phone at 239-344-1273.