Las Vegas businesses—and those across our nation—have recently experienced billions of dollars in damages and lost revenue due to the novel coronavirus. With government-mandated closures for “non-essential” businesses, to decreases in traffic and consumer spending for businesses fortunate enough to remain open, the losses suffered by companies can be overwhelming – or even fatal for some businesses.
Many businesses impacted by COVID-19 have insurance policies in place that include coverage for loss of business income or business interruption. Although companies can reasonably expect that their insurance policies will provide coverage for their losses resulting from the COVID-19 pandemic, insurance companies have gone on the offensive. Some have gone so far as to preemptively release statements informing businesses that policies do not provide coverage for loss of income due to COVID-19. While it is true that some business policies will not provide coverage based on exclusions or lack of applicable coverages, some might provide coverage. The key to coverage lies in the policy language.
What is Business Interruption Coverage?
Business interruption insurance provides coverage when a business is unable to operate because of a loss to covered property. Although business interruption coverage is not sold as a stand-alone policy, it is nearly always possible to add the coverage to a commercial property insurance policy or business owner’s policy, and it is frequently included in business policy packages.
Business interruption insurance compensates policyholders for net income that would have been earned had the loss not occurred. It also pays owners for the reasonable operating expenses—including payroll—that they continue to incur even though they have had to fully or partially cease operations. The amount of the claim is based on an organization’s financial records.
Business interruption coverage, when purchased, is typically included as a part of a property insurance policy. Accordingly, to trigger business interruption coverage, there must be a covered physical loss to property that causes an interruption of business operations and results in lost income.
What constitutes a physical loss?
A key question in determining whether business interruption policies will cover COVID-19 related claims is what constitutes a physical loss. Some common covered physical losses include damage caused by fire, wind, hail, explosion, falling objects, etc. The obvious common factor for these causes of loss is that they all cause observable structural physical damage, i.e., a burned building or a wind-damaged roof.
With COVID-19, it is unlikely that there will be visible structural damage to property. After coronavirus was declared a pandemic, some insurance carriers released public statements indicating that business interruption policies would not provide coverage for novel coronavirus-related losses because there is no physical damage or loss to property caused by COVID-19.
However, there are arguments to be made that COVID-19 does cause physical loss. In some cases, courts have determined that although structural alteration is the most obvious sign of physical damage, property damage or loss can exist without it. This is the critical argument when seeking business interruption coverage for COVID-19 losses.
Civil Authority Coverage
Some policies also include coverage for losses incurred when a civil authority (including local, state, or federal government entities) orders the closure of a business or prohibits access to an insured premise, as a result of physical loss or damage to property other than the insured’s property. Because this coverage is typically only triggered by a material loss to property (though not the insured’s), the question of what constitutes a covered loss is critical here as well. As with business interruption coverage, insureds will need to argue that a physical loss can be something less than visible structural damage to property.
In addition to the property damage resulting from a covered loss, for business interruption coverage to be triggered, the loss cannot result from something specifically excluded within the policy. The exclusions most relevant to coronavirus-related claims are exclusions for loss caused by virus or bacteria.
On the heels of the 2002-2003 SARS outbreak, many insurers began adding exclusions to business policies for losses caused by viruses or bacteria. The insurance industry has already started pointing to these exclusions in response to questions about COVID-19 coverage. However, not all policies contain virus exclusions, and not all virus exclusions eliminate coverage for novel coronavirus-related losses. Whether your policy provides coverage for losses related to COVID-19 will depend in part on whether the policy excludes losses caused by a virus, and if so, the specific language of the exclusion.
What do I need to do?
Businesses with commercial property policies—including business interruption coverage—that have suffered financial losses resulting directly from COVID-19 or the government-mandated closure of their business might be entitled to benefits within their policy.
If you think your business might be entitled to benefits, you should act quickly. Many insurance policies contain provisions requiring prompt notification of potential claims and other duties and obligations on the insured to ensure that their claim is considered and evaluated by the insurance company. If a claim is not tendered within the period specified in the policy, the claim might be waived.
It is critical to hire an insurance attorney who is not only experienced in dealing with insurance companies but also understands the issues that are important to business owners. The legal team at Maier Gutierrez & Associates is experienced in representing businesses and obtaining insurance benefits when insurance companies resist or refuse payment of claims. Please contact us for more information about our professional services or to schedule a consultation to evaluate your insurance policy to determine whether you might have COVID-19-related coverage.