[Updated on April 1 to clarify that potential coverage is not limited to commercial general liability policies.]
By Alexis Preskar, Cary Zimmerman and Jim Sammon
Business owners purchase insurance to protect against losses from catastrophe. COVID-19 has and will continue to cause companies to sustain major economic losses. But will your commercial insurance policy (“CGL”), Commercial Property Insurance policy or other insurance cover losses because of COVID-19?
Many policies have a rider that provides coverage for losses due to “business interruption” from a disaster. Coverage generally includes lost profits, operating costs, payroll, taxes, loans, and sometimes temporary expenses for moving (such as if the building was destroyed by a fire). Coverage can also apply if there is a disaster affecting a business’s suppliers or customers, or because of a government mandate. Some commercial property policies provide coverage for business income loss sustained when a civil authority prohibits or impairs access to the premises. This coverage is very case specific.
Losses caused by COVID would appear to fit directly in this category as businesses have been forced to close by many state and local governments, supply chains have been adversely impacted and customers are also suffering from the effects of the pandemic. However, to determine whether a CGL or other policy applies to COVID-19 losses, the language of your policy is key. If there is an exclusion for pandemics or global health crises, insurers will fight to try to deny coverage.
ISO Policy Forms May Exclude Claims
Unfortunately, many carriers use the Insurance Services Office’s (ISO) policy form, which excludes losses “caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” We expect that insurers will claim that this form language rules out claims due to COVID-19. While these exclusions may be present in your policy – that is not the end of the story. The form, function and facts of your claim – along with any potential future state or federal laws relating to coverage for COVID-19 – will dictate whether the insurance that your company paid for should act to cover your losses. KJK can assist to ensure that all options are exhausted to save your business.
Additionally, insurers may argue that COVID-19 has not caused any physical damage like a fire or flood would, and so there has not been a “loss” triggering coverage. Prevailing case law requires “damage or loss of property” as a predicate to the allowance of claims for “business interruption.” So the main question will be – whether the virus – and all of its consequences – caused property loss/damage.
Possible Relief for Businesses
However, some are already preparing for a fight on this issue. For example:
- Ohio and New Jersey proposed bills which would supersede any insurance policies that exempt coverage because of a virus. The bills would apply retroactively as well, and other states are considering similar bills. KJK will be tracking these bills and issue alerts on any noteworthy developments.
- Two well regarded restaurants in New Orleans and California recently brought cases asking the court to declare that their insurance policies do not have a pandemic exclusion and they will be covered for losses because of COVID.
Last week, a bipartisan group of 18 federal lawmakers wrote to four insurance trade groups requesting that insurance companies recognize financial losses due to COVID-19 as eligible under business interruption coverage. The insurers responded by saying that the insurance policies were not designed to cover such risks, and that federal assistance should instead be used to mitigate these financial losses.
What to Do
Immediately contact your agent or broker and get a copy of ALL of your policies of insurance, of whatever nature, that your company enjoys. Not only obtain copies of the policies, but also any Declaration Sheets attached to those policies.
As the pandemic continues to grow and cause untold business losses, we will be watching closely what measures the government or others may take to force business interruption coverage and will update our clients with any noteworthy developments in this area. In the meantime, be sure to obtain your policies and have them reviewed by competent counsel. The cost of a review is a business necessity that could save your company a great deal of money in the future.
If you have any questions about coverage under your policy, contact Jim Sammon at firstname.lastname@example.org or 216.736.7235, Samir Dahman at email@example.com or 614.427.5750, or Alexis Preskar at firstname.lastname@example.org or 614.427.5748, or contact one of our Litigation professionals.