Are Coronavirus-related Losses Covered by Insurance? A Look into Business Interruption and Liability Claims
By Buckingham Partner, Jude Streb
Business Interruption and Liability Claims Arising Out of the Coronavirus Pandemic May Be Covered by Insurance
In addition to the tremendous impact that the Coronavirus pandemic has had on our daily lives, health and safety throughout the world, it has created uncertainty and incalculable financial strain on the global economy and businesses everywhere. Governmental travel restrictions, “stay-at-home” orders and general fear regarding spread or contraction of the Coronavirus have caused many businesses to become concerned about the potential economic impact. For many industries and businesses, these concerns have already become a reality and the financial losses have begun to mount with little clarity as to when the world might return to “business as usual.”
Many businesses, both small and large, are protected by business interruption insurance coverage, typically found in their property insurance policy, that may be applicable to Coronavirus-related losses. This type of coverage is designed to protect against loss of profits or reduction in earnings or income. Many policies require physical damage to a business’ property to trigger coverage. Claims for business interruption often arise following natural disasters, such as hurricanes or wild fires. However, whether a particular policy provides business interruption coverage due to the Coronavirus pandemic could differ substantially from policy to policy and will be dependent upon the specific language of a particular policy, the precise nature of the business’s loss and the varying interpretation of policy language by courts in different jurisdictions. Thus, each policy will need to be carefully reviewed to determine whether coverage for Coronavirus-related losses has potentially been triggered.
There are several different types of business interruption coverage that are potentially available. These coverages could include all or any of the following:
- Business Interruption
This type of coverage typically provides coverage for direct physical loss to an insured’s property. However, some courts have found coverage available under the terms of a policy in the event of contamination or other factors that cause property to be uninhabitable or unsuitable for business purposes. Courts have previously found coverage under this type of policy in instances involving the presence of asbestos particles or gasoline contamination, even though these circumstances did not cause direct physical loss or damage to the insured property. Cases asserting claims for coverage in circumstances involving things such as contamination to physical property by presence of the Coronavirus or concern over spread of the Coronavirus among employees have been filed in courts in recent weeks. Whether the circumstances faced by a particular business will be covered under the business’s policy requires a case-specific fact and policy analysis.
- Contingent Business Interruption Coverage
This type of coverage typically applies to losses sustained by a business as the result of an interruption or disruption of a customer or supplier’s business. Similar to standard business interruption coverage, contingent business interruption coverage also typically requires physical loss or damage to property, although Coronavirus contamination or other related circumstances could trigger coverage depending upon the particular facts and policy language at issue.
- Civil Authority Coverage
Insurance policies that contain a civil authority provision could provide coverage to businesses to which access has been denied by a governmental entity. This type of coverage typically applies in situations such as evacuations or the closure of a particular facility (i.e., an airport) or area of a city by government order.
- Extra Expense Coverage
This type of coverage is designed to protect against losses sustained by a business related to additional expenses incurred in an effort to limit or prevent business interruption or loss.
Even if a business does not have these specific coverages in its policy, it is possible that a loss could be covered under the policy of a party with which the business has entered into a contract related to the loss. For example, some leases and secured loan transactions require a contracting party to secure business interruption coverage which could inure to the benefit of the other party to the contract. In those instances, the parties’ contract should be reviewed, along with any applicable policies. If the contract contains a provision requiring the other party to maintain business interruption coverage, the party seeking to recover under the policy will need to take affirmative action and to work in tandem with the insured to make a claim under the policy. To initiate a claim, formal written demand on the insured may be required, in accordance with the notice provisions set forth in the contract.
In addition to the types of claims identified above, a business’s insurance policies may also provide coverage and, when applicable, a defense against liability claims related to the Coronavirus. For example, commercial general liability insurance policies could provide coverage against claims by third parties who may have contracted the virus on a business premises or from a business’s goods or products. While causation may be extremely difficult to establish with this type of claim, an insurer’s duty to defend an insured business against such a claim arises when there is potentially or arguably coverage under the policy. In the context of a lawsuit, this determination is typically made from the allegations of a complaint regardless of whether or not such a claim appears to have a high likelihood of success.
Businesses faced with business interruption losses or liability claims related to the Coronavirus should review their policies to determine whether they have any of the coverages identified above, or possibly any other coverages, which could apply to the situation. In instances where an insured believes that a particular loss or claim may be covered by insurance, notice should be promptly given to the carrier. Insurers will often deny coverage on the basis that business interruption is not covered by the policy due to certain policy conditions not being met or because the claimed loss does not satisfy certain requirements of the policy. However, coverage could very well be available to a business for Coronavirus-related losses and claims depending upon the specific facts and policy language at issue.