All Business Interruption Insurance is NOT Created Equally.
Many of us have had our businesses interrupted as a consequence of government actions to curtail COVID19. Many of us also have insurance that purports to cover Business Interruption (“BI”).
Steve Brower of the Brower Law Group in Laguna Hills, CA is one of the top insurance coverage litigation attorneys I know. I asked Steve if he had written anything that could guide business owners as they evaluate whether their BI policies are going to provide any help. He has indeed. Steve and his fellow Brower Law Group attorney Tae Im recently penned an article titled Business Income Insurance for the CV-19 Pandemic.
Their article discusses basic principles of law that apply to insurance coverage disputes.
With Steve’s permission, I am going to use major portions of that article in my post this week. The purpose of this post is to give business owners a place to separate the wheat from the chaff regarding BI and COVID19.
The Reasons Most BI Policies Probably Won’t Cover COVID19.
This section is copied directly from the article. I have edited it for length.
“But, contrary to the recent hype regarding the possibility of obtaining insurance coverage under Business Interruption/Business Income (“BI”) clauses for the severe economic losses from Coronavirus (as reflected in several headlines about suits against insurance companies) we believe that pursuing coverage through litigation is only going to be a worthwhile pursuit, particularly this early in the process, for a very few policyholders.
BI coverage exists somewhere in most businesses insurance policies. And when people see that they have something called Business Interruption in their insurance they understandably assume that it might apply to current circumstances where businesses have obviously suffered a substantial loss of income from the interruption of their business.
Unfortunately, particularly with insurance, titles can be very misleading. BI coverage is almost always tied to your “property” coverage, even though it might be included in a “package” policy, which also includes other types of insurance. As a result, there are a number of hurdles to be considered.
First, because it is tied to the property policy, there is almost always a requirement of “direct physical loss of or damage to” the insured’s property. The most common example of an “easily” covered loss would be a fire and the resulting business interruption until restoration can be completed so that the business can operate again.
Some of the recent suits have argued that CV-19 should be treated like asbestos. The recent cases then argue that it should be assumed that the virus is everywhere and has caused physical damage to all property. But that isn’t how it works: with asbestos it is normally required that a test show that your property was contaminated. You then need to clean your property and restore it to use (the “period of restoration”) and also show that you did so as soon as possible.
Second, many policies also provide Civil Authority coverage, which generally provides coverage when a civil authority prohibits access to the insured location. However, this coverage still requires that the order of the civil authority is related to a direct physical loss or damage to other property, although, in our sample policy, that can be property within 100 miles of the covered business. So the challenge will be to establish that the civil authority, whose order directly affects your business, was making the order based on direct physical loss to at least someone’s property, not just a health danger to the public at large.
Third, BI coverage also sometimes includes loss caused by the loss of off-site utilities, such as when you have no electricity. But even that coverage requires that the reason why the utilities are off is because of a covered cause of loss. So, for example, if the power plant stops working because workers can’t/won’t go there, that probably doesn’t give you coverage – but if the power plant has a fire, and then you lose electricity, you generally do have the potential for coverage.
Fourth, many of the current policies have a specific virus exclusion, which makes it much more difficult to make any other creative arguments about potential coverage for a virus or the related societal effects of a “shelter at home” order. For example, ‘We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.’”
What Types of BI Policies Likely DO Provide COVID19 Coverage?
The edited article continues:
“Second, and in a very different circumstance, there are a few insureds who specifically purchased pandemic coverage (often for a significant additional cost) where the insurance company is, nonetheless, denying coverage. Those unique policies generally “name” the viruses for which they will provide coverage and some insurers have apparently argued the CV-19 isn’t named. However, from some of the suits we have reviewed, it appears that there are very good arguments that those policies do provide coverage for CV-19 based on the broad description of covered viruses. So, for those few insureds who have actually purchased pandemic coverage, it is almost certainly a worthwhile investment of time to speak with a lawyer with substantial insurance coverage experience.
Concluding Thoughts from the Brower Law Group:
“However, notwithstanding these issues, claims should be submitted to insurers to preserve rights in case there is a favorable change in the law or if there are favorable court decisions. The time limits for an insured to submit a claim to its insurer, and the time thereafter to file suit against an insurer who wrongfully denies coverage, varies from state to state and from policy to policy. We are currently formulating a letter which we will be providing to our current clients, at no charge, to preserve their rights.
We are happy to talk to any potential client and to review their insurance policies to see if they might have an exception to our generally cautionary experience without obligation.”
Steve can be reached by email at Steve@BrowerLawGroup.com.
Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.
© 2020 Michael S. Oswald