COVID-19 Business Interruption Insurance Claims: Time is of the Essence

By ChristiaR. Patno and David M. Cuppage 

Since Ohio Governor Mike DeWine’s announcement that the Ohio Department of Health (ODH) has issued a Director’s Order that will close all Ohio bars and restaurants to in-house patrons, and subsequent order of the temporary closure of Ohio’s barbershops, hair salons, nail salons, and tattoo parlors due to the ongoing COVID-19 pandemic, the issue of business interruption coverage has jumped to the forefront of business owners concerns.

The availability of coverage for business losses will vary among policy forms, exclusions and jurisdictions. Each policy must be examined for specific coverage and exclusions, while paying particular attention to the losses for which recovery is being sought.

There are several policies and exclusions to consider.

Commercial Property Insurance (Business Interruption)

Companies often purchase business interruption coverage as part of traditional “all-risk” commercial property policies. Business interruption coverage is designed to cover lost income arising from disruptions to an insured’s business operations. Under most policies, insureds will have to prove that a “Covered Cause of Loss” caused direct physical loss of damage to the property, at the described premises, resulting in a suspension or interruption of business operations and the resulting loss of business income.

Business interruption coverage is generally tied to a suspension of an insured business caused by direct physical loss of, or damage to, the insured property.

Some policy holders will argue that the presence of a virus in a structure qualifies as physical damage. Further, business interruption coverage often only extends coverage to losses caused by specific perils, such as fires, earthquakes, storms, and other expressly designated causes.

In addition, many business interruption policy forms frequently exclude “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.”

Contingent Business Interruption

A policy may provide “contingent business interruption” coverage, which typically provides coverage for economic loss caused by damage to the property of a key supplier. Policy terms may limit coverage to damage to the property of a direct supplier or may include damage to the property of suppliers of suppliers.

Civil Authority Coverage

Many property insurance policies also include “Civil Authority” coverage, which covers similar business income losses that result from a public authority restricting the use of or access to an insured’s premises. However, as with business interruption coverage, “Civil Authority” coverage often requires the underlying civil order or restriction to directly result from physical loss or damage to the property.

Event Cancellation Insurance

An event cancellation policy may protect an insured from financial losses such as lost ticket sales, out-of-pocket expenses, contractual guarantees, and perhaps reimbursement to attendees. Most often, event cancellation policies are crafted to kick-in when events become either legally or physically impossible to hold.

General Liability Insurance

Typically, commercial general liability policies provide liability coverage for third party claims for “bodily injury” and/or “property damage” resulting from an “occurrence.” Riders for communicable disease coverage tend to have specific limitations in the form of specified trigger events and other limitations on the amount of recovery.

Pollution policies

First party pollution policies may provide business interruption coverage for “releases” and “exposures” to “toxics.” However, many pollution policies have limitations on communicable diseases.

Recent Legislative and Executive Developments

Recently, states like Ohio have drafted proposed legislation seeking to provide business interruption coverage for the Covid losses even if the business interruption insurance policies in issue have exclusions which apply. In Ohio, HB 589 currently proposes providing coverage to businesses with less than 100 employees who have sustained a Covid-related business loss up to the policy limits set forth in the policy. As proposed currently, the insurance company would administer and pay the claim and the insurance company could then apply to The State of Ohio for reimbursement. Although this Bill is in its early discussion stage, if passed it would provide much needed protection. Each Ohio business should immediately contact their respective state representatives and lobbyists with their stated support of this bill and encourage other similarly situated businesses to do the same.

Recently, President Trump has also supported insurance companies paying business interruption claims due to Covid-caused damage since it is the right thing to do.

Thus, there is an evolving school of thought that such claims should be paid even though there may exist arguable policy defenses. It is expected the insurance industry and their lobbyists will strongly oppose such efforts arguing that claims such as this were not actuarily foreseen nor planned for and such claims would pose an undue burden on insurance companies.

What To Do To Preserve Your Rights Today

Many business owners believe they can wait and see how the Covid upheaval all plays out. Damages may still be evolving, they may believe they have no claim, they may have applied for the PPP or other loan or grant. However, that is simply not the case. Time is of the essence even if all damage is not complete and is ongoing or some of the damage is offset by grants or loans. Most insurance policies require an insured to submit a formal claim in order to timely place the insurance company on notice. Failure to do so will likely result in a policy defense to a valid claim down the road should the claim not be made NOW. Simply calling your agent is arguably not sufficient. Further, many agents have advised no coverage exists even if that is not necessarily the case. Agents do not make this determination. Claims personnel and eventually trial courts if needed, do. You therefore must submit the claim immediately to the claim department of the insurance company and obtain an official claim number. You can do this through the agent but must verify an official claim has been set up.

Your insurance policy likely has a time period listed within it where suit must be filed. Submitting an early claim provides you with the best chance for avoiding the need to file suit due to time limits. Submitting a claim does not mean you will eventually file suit. However, it will protect your rights should you need to do so later.

If after submitting the claim, the insurance company requests evidence of damages or otherwise as required by the policy, you need to reasonably comply. Failure to do so may result in the insurance company raising a second defense of failure to cooperate as required by the policy.

Contributing Advisors

Kenneth B. LiffmanChairman of the Board and President, McCarthy, Lebit, Crystal & Liffman Co., LPA

Robert T. GlickmanManaging Principal, McCarthy, Lebit, Crystal & Liffman Co., LPA