Within a matter of weeks, businesses have gone from life as usual to dealing with the imposition of moratoriums, quarantines, and bans on public gatherings. COVID-19 (a.k.a. the Coronavirus) has already severely impacted many business owners. With no clear end in sight, it is important to understand how to deal with the economic impact of government-related closures/quarantines. In times such as this, it is important to understand if, how, and to what extent lost business income is recoverable under a commercial policy.
Unfortunately, not all policies are written the same and with the inevitable losses that are on the horizon, it is important to know what coverage is available and how much, in order to plan for the future.
Know your policy:
Nearly all commercial policies include some kind of business interruption or lost business income coverage. However, most policies are written in anticipation of a direct loss or physical damage to the building, leading to an interruption in services. Although a virus or other contaminants could be and have been found to meet the “direct physical loss” requirement, the specific language of each policy and the breadth of coverage is important to know what to expect as far as coverage and how to trigger insurance to step in and cover those losses.
Insurers will likely be seeing a massive increase in claims coming out of the COVID-19 outbreak and seek any reason to deny coverage. It will be important to understand the policy, any governmental restrictions/moratoriums and how they impacted business operations, underlying accounting (for both proof of prior profits and that staying open during the pandemic would have been equally or more detrimental to business operations).
Many business are choosing to close their doors (or reduce services) until governmental restriction have been lifted. This could implicate civil authority coverage, which provides for recoupment of losses in the event that a government executive order or directive prohibits the operation of a business. This may be a close call, considering the exemptions for work places under many state mandates. Navigating these insurance issues effectively and efficiently may be the difference between reopening your business the moment the moratoriums are lifted or shutting down.
Depending on your industry and the specific provisions of each policy there may be additional coverage available or restrictions or exclusions.
Know the facts and document:
It will be important to know the facts regarding what is going on at the time of an interruption in the business and to document the reasons for making a decision that impacts a business’s operations. A recommendation to close, as opposed to a governmental order, may have a significant impact on the strength/viability of a claim. Were there known infected persons within the community? Was remote access possible to continue limited operations during the moratoriums? What considerations/financial analyses were taken at the time a decision was made to cease or reduce operations? An insurer will likely assert that the business would have lost less money by staying open during the COVID-19 outbreak, seeking to limit the recovery of losses attributable to the closure.
Do not give your insurer any reason to deny coverage:
Most insurance policies include many terms that limit lawsuits against the insurer or otherwise require the policyholder to comply with before pursuing a claim of breach against their insurer. Make sure that you know any deadlines contained within the policy, including but not limited to, claim reporting requirements. For example, some policies include a requirement that the covered party reports any loss related to communicable diseases within 30–60 days. If the insurer is not notified until the end of the moratorium, it may be too late, or at the very least provide the insurer with a potential reason to deny the claim.
Don't be afraid to ask for help:
If your business has already been impacted, it may be time to consider placing your insurer on notice of a claim. There is no guarantee that coverage is available for some or all COVID-19 losses, but we can help to evaluate and pursue claims. Not everyone likes reading insurance policies, but we do. Let us help you make the right decision for public safety and plan for a brighter future for your business.
-Richardson Wright LLP Attorney Kirc Emerson