COVID-19 and Insurance Issues

Apr 22, 2020Covid-19, News

One resource that should be explored by our business clients is whether they have business interruption insurance (“BI”) for this businesses. While there have been frequent news reports regarding denials of coverage by insurance companies, review of the policy itself is important.

A typical BI policy will limit coverage to “physical loss or damage” – such as a fire or flood which prevents a company from conducting its business. In legal decisions throughout the country, such coverage has been interpreted as requiring actual structural damage to the building in which the business is conducted, and those cases can serve as the basis for a denial of coverage for closings based upon an unseen virus or governmental order. However, other case law has allowed recovery where something usually considered “non-tangible” (such as adverse health impact from carbon monoxide, asbestos, or lead poisonings) has caused the “interruption.”

Existing policies should be carefully examined, as the precise terms of the policy and its exclusions will, in most instances, be controlling. However, given the significant losses incurred by stay-at-home orders, closings based on concerns for employee and customer safety and other pandemic related closings, it is certain that there will be much litigation over payment for many asserted claims. If a company has BI coverage, it may well be appropriate to file a claim, taking care to fully and timely comply with all notice requirements of the policy.

Legislation has been introduced in several states (including Massachusetts) that would require existing BI policies to provide coverage for certain pandemic-related losses. Understandably, such legislation is likely to encounter pushback by the insurance industry, which will claim that the costs for such coverage were never considered when underwriting or pricing the policy, and which will also likely claim that the legislation is an unconstitutional “taking” by the government.

Other types of business insurance may also be affected by the pandemic. For example:

  • Commercial General Liability policies with potential claims made by employees or customers who claim damages to their health as a result of actions taken (or not taken) by the business
  • Director and Officer coverage for claims of shareholders for loss of value of the business by actions taken (or not taken) by those individuals, such as claims that have already been asserted by several cruise ship passengers

Given the uncertainties which prevail, no simple answer or broad form advice with respect to these issues is possible. Businesses are encouraged to review the policies they currently have to maximize the potential for possible recovery of some of the losses being incurred. Please contact any of the lawyers in our business organization, real estate, bankruptcy or litigation practice areas if you need assistance with insurance issues.