The vast majority of businesses have been adversely affected by the COVID-19 shutdowns and restrictions. If your company had business interruption insurance, you may be able to make a claim.
Business Interruption Insurance
Business Interruption Insurance provides coverage for losses due to business interruption of the insured’s premises. An example would be business loss due to a fire, explosion, or certain types of storm damage.
Contingent Business Interruption Insurance coverage protects against losses resulting from disruptions to a business customers or suppliers.
For Business or Contingent Business coverage to apply the threshold issue is that there must be ‘direct physical loss of or damage’ to the insured property, that is caused by a ‘covered event’. A ‘covered event’ is defined in the policy. There is no ‘standard language’ in these types of policies. The ‘covered event’ may vary from policy to policy, and there will be many exclusions. For example, water damage from burst plumbing may be covered, but damage from rising ground water may be excluded. A fire or explosion may be covered, but there may be an exclusion if the loss is due to a civil riot, or an earthquake.
In addition, there must be ‘physical loss or damage’. In the case of fire or water damage the issue of physical damage is straight forward. It is still an open question whether business closure ordered by governmental edict due to the COVID-19 pandemic involves ‘physical damage’. For the most part insurance agents and insurance companies are maintaining that with COVID-19M there is no physical damage to the business and therefore no coverage. On the other hand, some governmental authorities, such as Harris County, Texas, New York City, and the City of New Orleans, in their emergency closing declarations, specifically state that the COVID-19 virus causes property loss or damage due to its ability to attach to surfaces.1
There are no cases on point dealing with COVID-19 infection qualifying as ‘physical damage’ to premises. Where contamination that leave the physical premises unaltered but cause a premises to be inoperable or uninhabitable, there are cases that have found covered losses. Examples are contamination by gasoline vapors, carbon monoxide, sulfuric gas released by drywall, odor from methamphetamine labs, and release of asbestos fibers. A survey of applicable cases indicates that in order to prevail, not only does the claimant have to prove the contamination was present, but that there was some actual harm to the premises that made it unusable. The mere threat of COVID-19, or the preemptive closure of a business due to the threat of COVID-19 alone will most likely not be sufficient to prevail in a business loss claim.
It is expected that tens of thousands of business owners will file loss claims under their policies. Though the law is not settled, those claimants who can prove that the virus was present in their establishment, such as if an employee or clients who became infected while at the business, or testing that reveals presence of the virus, will have the highest chances of success in a business loss insurance claim.
If you have business interruption insurance, call the Law Office of Elliott Klein for an evaluation of your business loss insurance claim.
1 March 24, 2020 Order of Harris County Judge, Lina Hidalgo; March 16, 2020 City of New York Emergency Orders During the State of Emergency Due to Covid-19; and March 15, 2020 New Orleans Emergency Executive Order No. 100.