A lot has changed over the past month. Here’s a recap:
- March 11, 2020: The WHO officially declared COVID 19 to be a pandemic
- March 15, 2020: Ohio Governor Mike DeWine orders all bars and restaurants to shut down in order to slow the spread of COVID-19
- March 22, 2020: Gov. DeWine signs the state’s first stay-at-home order
- March 29, 2020: Ohio HB 589 is proposed, seeking to require insurers that provide business interruption insurance to cover losses that arise from viruses and pandemics
- April 2, 2020: The stay-at-home order, including the ban on non-essential business, is extended until May 1, 2020
Things are moving too fast. What can a business do?
Is this something a typical business insurance policy should cover? A virus? A government forced shut down? This question has been asked in Ohio and all over the country countless times over the past few weeks. The answer may be the most complicated response America’s business and political systems will ever have to answer. Whether – and how fast – it’s answered will decide the fate of many.
As a result of losses due to COVID-19, businesses have looked for every option to cover expenses – including SBA loans, potential extension of available credit and possible insured claims for business interruption.
Clearly, business of every nature has been interrupted in every corner of our country. But is it covered?
In this post, we’re taking a deeper look at claims under business interruption insurance, including the key policy language, arguments from the insurers and counter arguments, coverage that may be available under other policies, potential options being considered under new legislation in several state legislatures and Congress, as well as updates on already filed litigation.
The Common Language
The standard Insurance Services Office (ISO) form for business interruption insurance is CP 00 30 10 12. Generally, the key language in commercial property insurance policies is:
- Physical Loss: The suspension of business operations must be caused by direct physical loss of or damage to property.
- Generally, commercial property insurance policies are “all risk” policies. This means that the insurance company must prove that the peril causing the damage is excluded; otherwise, coverage applies.
- Virus Exclusion: Some policies have a specific “virus exclusion,” which states that the insurer “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.”
Insurance carriers have denied claim business interruption due to COVID-19 primarily saying:
- COVID-19 hasn’t caused any direct physical loss or damage to property.
- The virus exclusion applies because any loss was caused by COVID-19, a virus.
Don’t simply accept this “no.” There are many potentially strong counterarguments to these assertions. Look at why you were harmed, what actually caused the economic damage your business experienced and what the language is in your specific policy. Understand that how you phrase your “notice” of a claim to your carrier may play a significant role in both the response you receive, and potential legal claims when a denial is received.
Other Policies May Provide Coverage
There may also be coverage for losses under different provisions of a business’s policies, such as:
- inability to access property due to disruption in ingress/egress
- losses due to government actions
- contingent business interruption, e. when a supplier is disrupted
Additionally, policies for specific events should provide coverage under either cancellation or postponement provisions as events have been forced to cancel or postpone due to government orders or recommendations.
States – including Ohio – and the federal government are proposing legislation to force coverage.
Ohio’s H.B. 589 was initially sponsored by State Representatives Jeffrey Crossman (Dist. 15. Parma) and John Rogers (Dist. 60, Mentor-on-the-Lake) and requires that “every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this state on the effective date of this section, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic during the state of emergency.” As of the date of this writing, New York, New Jersey, Massachusetts, Pennsylvania and Louisiana have proposed similar bills. Other states are sure to follow.
A federal proposal would “create a reinsurance program similar to the (post 9/11) Terrorism Risk Insurance act for pandemics, by capping the total insurance losses that insurance companies would face.” Rep. Maxine Waters of California has introduced a proposal and is allegedly drafting a bill.
KJK is tracking these pieces of legislation and will provide updates as they move forward.
Litigation has been initiated in federal courts in Louisiana, Illinois and California seeking declaratory judgment that insurance coverage for business interruption losses applies and claiming bad faith against the insurance carriers for denial of the claims. Litigation is a slow process – especially in COVID times.
The key is to ensure that businesses take the necessary steps to assert a timely claim. And if denial of the claim is sent by the insurance carrier, discuss with counsel the claim’s potential success via litigation.
If you have any questions about coverage under your policy, contact Jim Sammon at email@example.com or 216.736.7235 or Alexis Preskar at firstname.lastname@example.org or 614.427.5748, or reach out to any of our Litigation professionals.