In view of the major disruptions caused by the coronavirus pandemic, many businesses can and should file insurance claims. Below is an overview of insurance issues cropping up due to coronavirus.
Preliminary Issues – Claims and Notices
As a threshold matter, coverage is based on whether your facts fall within the unique language of your policy. Therefore, the first step is to find any relevant policies and consider having an attorney review them. You should also compile evidence of your loss, including any government orders compelling business shutdowns. Whether you are covered will likely turn on several factors, such as:
- the cause of the loss,
- whether there is a direct physical loss or damage,
- whether there is an exclusion, and
- whether certain actions by the insured were voluntary.
We recommend providing prompt notice to the insurer of a potential claim if a business is shut down in these circumstances, particularly in New York, where late notice can be fatal. In addition, almost all policies, particularly third-party liability coverage, require prompt notice to the insurer of the facts and circumstances possibly giving rise to claims, even before there is a claim or the filing of formal notice of claim. It is important to do so now and before any new policy year starts. Otherwise, the insurer will likely deny coverage on the basis that (i) you did not disclose the existence of the relevant facts on your application for the new policy year, or (ii) if a claim is later filed it does not relate to the coverage you had in your prior year. By filing notice now you preserve your coverage under this policy year, even if the claim is later filed in the next policy year.
Below are several types of coverage which may be relevant under current circumstances. We are available to consult with you about whether your policy provides coverage.
First-Party Property Coverage, Including Business Interruption Coverage
- Property Loss
This is for physical loss to property. While insurers are likely to claim there has not been the physical loss to property, we can assert arguments to trigger coverage, based on the possibility that a virus could contaminate a location and constitute physical damage. Of course, it is not yet clear how courts will decide this issue, but you should be aware that it may be possible to push back on a denial of coverage.
- There are usually two types of business income coverage:
- Business Interruption Coverage, which provides benefits for lost net income, and
- Contingent Business Interruption Coverage, which provides benefits for lost net income caused by loss of access to customers or suppliers, and typically has a 72-hour waiting period.
- To trigger business interruption coverage, typically one must have suffered a physical loss to property.
- Most, if not all, policies do not cover a loss resulting from a civil authority order which closes businesses or imposes a curfew, unless there is a specific addition to coverage. Moreover, this type of coverage generally covers physical damage at or around the premises.
- Some policies have broad virus exclusion clauses, which excludes coverage that otherwise might exist, if either:
- The loss is caused by, results from, or relates to a virus [broadest form] or
- The loss is caused by or results from a virus [narrower].
If your policy excludes bacteria but not viruses, coronavirus is not excluded. These virus exclusion endorsements appear to exist in at least the policy year 2019 to date. Exclusions cannot be added after the fact (but see the note on renewals below). But if virus exclusions are not in your policy now, insurers are likely to add those exclusions to your next policy.
- To the extent that legislatures or insurance departments may “order” insurers to pay these claims, we note that these orders may not be enforced by courts due to constitutional constraints
- Renewals are likely to exclude coronavirus or viruses generally, given the current situation. Watch out for those.
Event Cancellation Coverage
- This is a specialized coverage not generally found in a standard policy. It would not apply to a voluntary cancellation and it often requires the insured to use best efforts to mitigate the loss.
Third-Party Liability Coverage
- The virus exclusion usually applies to first-party property coverage only, not third-party liability coverage. If there were a claim against insured for negligently allowing employee or customer to become sick with the virus, this coverage could protect you and the virus exclusion may not apply.
- D&O coverage could apply if there were a claim that directors and officers did not act properly to prepare for and respond to the virus.
- Workers could seek coverage for getting infected on the job, but there would likely have to be clear proof that the infection was intertwined with the job, for example, health care workers and public safety employees. But, many other workers might also file such claims.
For further assistance in evaluating your policy and circumstances, please contact your primary GEABP attorney, or either of the attorneys listed below:
Michael Devorkin (212) 907-7348
Nick DiMarino (212) 907-7387