3 key points: (1) many business interruption insurance policies have exceptions for communicable diseases, viruses, bacteria or fungi—this is the first place to look to determine whether you are covered; (2) insurers are denying coronavirus-related claims from small businesses even if they do not have those exceptions in their policies—despite this, insureds can still file claims arguing coverage is triggered; and (3) restaurants are lobbying lawmakers and suing insurers to get payouts—there is hope for small business owners in the foreseeable future.
- Exclusions, Endorsements
Whether you have insurance coverage for COVID-19 business losses can hinge on several factors. If there is a specific virus exclusion written in to the policy, it will be difficult to argue for the insurer to cover your claim. Many insurers began adding virus and pandemic exclusions following the SARS outbreak in the early 2000s and rely on this language as the basis for claim denial. Lobbying and litigation, as discussed below, could change that in the near term and preclude virus exclusion enforcement.
If your policy does not contain express exclusionary language, it may either contain language endorsing business interruption coverage for viruses and pandemics or be silent on the issue. If your policy contains endorsing language, your insurer will likely provide coverage without issue. If your policy is silent regarding coverage for virus or pandemic related business losses, most disputes between insurers and insureds will result from whether there was an applicable act of civil authority (in general, to implicate civil authority coverage, there must be physical damage to property other than the covered premises), what the applicable stay-at-home order states, or whether the policy language requires direct “physical loss or damage” to the covered property itself.1
2. “Physical loss or damage” to covered property
Most policies require “physical loss or damage” to covered property to trigger coverage. Insurers are denying claims arguing that the virus does not constitute “physical damage” to the property. On the other hand, several recently filed lawsuits seek declarations that if COVID-19 is found within the covered property, because COVID-19 may spread through “formites” for up to 28 days, the property has suffered “physical loss” triggering the business income coverage provision.2 What constitutes physical loss or damage is and will likely continue to be a litigated issue nationwide for the foreseeable future.
3. Lobbying and Litigation
Current lobbying efforts and a wave of lawsuits seek to preclude virus exclusion enforcement and force insurers to cover business losses related to COVID-19. Several states including California, New York, South Carolina and Ohio, are working to propose legislation that would apply to existing insurance policies.3 These proposed bills may benefit small business owners as President Trump signaled that he believes insurers should cover business losses related to COVID-19 if the policies do not contain specific virus exclusions.4
1 Randy J. Maniloff and Margo Meta, New DJ Takes Different Tack on Business Interruption Coverage for COVID-19, White and Williams (Mar. 27, 2020), https://www.whiteandwilliams.com/resources-alerts-New-DJ-Takes-Different-Tack-on- Business-Interruption-Coverage-for-COVID-19.html.
3 Id.; see also Barry Shuster, Business Interruption Insurance: Are You COVID-19 Covered?, RestaurantOwner.com (last visited May 4, 2020) https://www.restaurantowner.com/public/Business-Interruption-Insurance-Are-You-COVID19- Covered.cfm.
4 Id.; see also Victor Reklaitis, Insurers face ‘uh-oh moment’ as Trump says some business-interruption policies should cover coronavirus claims, MarketWatch (Apr. 13, 2020) https://www.marketwatch.com/story/insurers-face-uh-oh-moment-as-trump-says- some-business-interruption-policies-should-cover-coronavirus-claims-2020-04-13.