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BUSINESS INSURANCE CLAIM DUE TO LOSS OF INCOME RESULTING FROM THE CORONAVIRUS PANDEMIC
It is important to work with an attorney because the insurance companies have created every single possible way to get out of their contracts for business insurance! In regards to the current coronavirus pandemic crisis, the business owner will have a better likelihood of obtaining coverage for loss due to the coronavirus if there was physical property damage (please read below for a more thorough discussion of possible business insurance claim provisions, exclusion, and extensions). Undoubtedly, there will be a floodgate of denied business insurance claims by the insurance industry. Business insurance policies are difficult to understand. Contact The Sterling Firm now for help in fighting these insurance companies!
The Impact Of The Coronavirus On Business
The Coronavirus Pandemic has shut down the world economy. All business sectors have experienced the impact. Governments have ordered entire regions to be shut down and cities to quarantine. Workers are ordered to stay home. Clearly, all businesses are experiencing an impact on their revenues and are experiencing a form of loss. Based on these unprecedented economic challenges, businesses must look for ways to recoup or at least minimize their business income losses.
Many businesses may have an insurance policy and may attempt to submit a business insurance claim for their losses to their insurance carrier. The likelihood of obtaining any type of insurance coverage and how courts will determine disputes relating to a business insurance claim is yet to be known as this pandemic is a matter of first impression. It is important to work with an experienced attorney in order to obtain the coverage that you are entitled to or in order to file a lawsuit disputing the denial of your business insurance claim. We can expect the insurance industry to deny the business insurance claim. The insurance industry will have a strong pushback in providing coverage because the every business insurance claim due to the coronavirus will be substantial.
What Is Business Insurance?
The common form of “business insurance” is an insurance policy known as Commercial Property Insurance. Businesses that have experienced interruption in their operations should review their insurance policies to determine if there are any provisions that may include coverage. Possible applicable insurance provisions may include “Business Interruption” and “Contingent Business Interruption” provisions.
“Business Interruption” insurance covers the losses resulting from direct interruptions to operations, and generally covers any lost revenue, fixed expenses, rents, utilities, or other expenses that result from operating out of a temporary location. Likewise, “Contingent Business Interruption” insurance covers the lost profits and costs that indirectly result from disruptions in the supply chain, which includes the failures of suppliers or downstream customers.
Will Insurance Provide Coverage For Business Losses Caused By The Coronavirus Pandemic?
There will be a battle against insurance companies to provide any type of coverage for the losses that result from the Coronavirus crisis. Business insurance policies mostly relate to physical property damage. However, businesses are now submitting claims for coverage of losses due to “business interruptions” resulting from the current COVID-19 Pandemic.
The written policy language is critical. The likelihood of a business insurance claim being successful depends on the expressed terms in the policy. The specific language written in the insurance contract will control. Moreover, the historical precedent based on past epidemics has been against allowing coverage for the business interruptions related to a pandemic such as the current Coronavirus crisis. For example, following the outbreak of Severe Acute Respiratory Syndrome (SARS) in around 2003, the insurance companies began to exclude “viral” or “bacterial” outbreaks from their insurance policies. Moreover, the insurance companies are now taking the position that “communicable diseases” not expressly specified in the insurance policy are not covered.
It is extremely important that businesses proactively review the terms and conditions of their insurance policies to determine whether interruptions from the COVID-19 pandemic is covered. Insurance carriers also have very precise notice requirements to comply with the insurance provisions. It can be anticipated that a floodgate of insurance coverage lawsuits will be filed with the courts concerning the denied business insurance claim resulting from the Coronavirus pandemic.
Generally, there must be a causal connection between physical loss or damage to the actual commercial property and the loss of income. Most policies state that there must be a “direct physical loss of or damage to property.” The key issue in determining Coronavirus claims will be whether the insured’s loss of business income was the direct result of physical loss or damage. If there are causes for the loss of income other than physical property damage, then the business insurance claim will likely get denied. For example, the fact that workers and employees are staying at home is not sufficient to provide coverage.
Physical Property Damage
There must be physical damage to property. Legal counsel handling your business insurance claim must be creative and somehow link the coronavirus to physical property damage. The key factual issue is whether the insured’s property was actually physically altered and/or affected by the coronavirus.
Generally, an “alteration” to the property is required. There is a split in jurisdictions as to what is considered a “physical loss or damage.” Some courts require that there be tangible changes to the property. Other courts apply a more liberal analysis and merely require some form of demonstrable alteration or change to the property. In regards to the coronavirus, the insurance companies can cite to court decisions which have stated that “the mere adherence of molecules to porous surfaces, without more, does not equate to physical loss or damage.” It will be a difficult burden to satisfy in order to show that the coronavirus directly caused physical damage.
Moreover, the virus is said to spread from person-to-person due to sneezes and coughing. There may also be spread from contact with infected surfaces or objects. A business may experience a shut down due to cleaning and disinfecting of its surfaces. Again, there must be physical damage or loss in order to have insurance coverage for the losses that result. The contaminated surfaces must have sustained an actual physical damage or loss.
Each case is determined by its own facts and circumstances. In some cases, it may be shown that the coronavirus micro-droplets in fact caused property damage – although this may be very rare. It is more likely that zealous advocacy by lawyers and legislatures should persuade the courts to take a more liberal and favorable position toward business insurance claimants. Even so, the insurance industry will have a strong pushback and have deep pockets to influence lawmakers and vehemently defend against insurance lawsuits.
Business Insurance Claim Coverage Limitations And Exclusions
To make matters even more challenging for the insured, there may be limitations and exclusions in the insurance policy. Even if the contamination of property by the coronavirus is considered a “physical damage to property”, insurance policies normally have other terms and conditions that will limit or preclude the coverage for the loss.
How Is Cost to Repair or Cost to Replace Property Contaminated By Coronavirus Calculated?
Insurers typically pay out the lesser of the cost to repair or the cost to replace the lost or damaged property. An issue is how this will be calculated in regards to coronavirus crisis – what is the cost to remediate Covid-19 from the property?
Most experts agree that cleaning the property with soap and water, bleach, or vinegar will kill the virus. Plus, there is evidence that the virus lasts between 2 hours to nine days on a surface. Many times, the objective cost to repair is not substantial.
Another question to consider is, once the property is cleaned but the location gets re-infected will that be considered a separate occurrence triggering a new deductible?
Period Of Restoration
Moreover, the insurance coverage for the business interruption will commence according to the insurance policy’s stated “Period of Restoration”. This is also called Period of Indemnity and Period of Liability. This term typically is defined in the insurance contract as: the period of time that (1) begins with the date of accidental direct physical loss caused by an insured loss at the described premises; and (2) ends on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality.
In some policies, there is a period of 72 hours before coverage may begin. This period begins with the date of accidental direct physical loss and then ends on the date when the property should be repaired, or rebuilt with reasonable speed and quality. These questions put further limitations on the insurance policy since periods of restoration in regards to cleaning are pretty short, thus making it harder for the insured to get proper coverage.
The insurance company will argue that the business is experiencing prolonged periods of delays, shutdowns, and loss of productivity due to employee illness or other issues unrelated to physical damage to their property that do not fall within coverage or the Period of Restoration. Therefore, the losses cannot be connected to property damage and the insurance company will deny the business insurance claim.
Specific Exclusions May Preclude Coverage
In these cases the language of the policy and the specific exclusions are important. Typically, in commercial property insurance policies there will be exclusions for “contamination” and “pollution”.
Bacteria or Virus Exclusion
These insurance policies could also have specified exclusions – for instance, it could be written in the insurance contract that the words “bacteria” or “virus” are specifically identified as not being covered. If in the provisions the word “virus” appears to be excluded from coverage, then any damages from the coronavirus are not going to be covered and the insurance company will deny the business insurance claim.
“Contamination” exclusion may also prevent coverage. It is an exclusion that the insurance companies use somewhat as a catchall escape clause – to allow the insurance company to be relieved from providing coverage. “Contamination” is a broad term. Therefore, Insurers trying to use the contamination exclusion in their favor will be required to provide proof that the property was in fact contaminated by the virus. To have the benefit of the contamination exclusion, the insurance company must offer proof that the property was actually contaminated by the coronavirus. The interpretation of “contamination” is quite broad and arguably limitless in a way that the insurance company can apply to any situation. Ultimately, “contamination” is a material fact that must be decided by a jury.
Non-Physical Damage Coverage Extensions
Some insurance policies have extended coverage to non-physical damage. This includes indirect losses rather than losses from property damage. This is beneficial to the insured. Even more, some policies may include coverage for cancellations relating to epidemics. Some provisions to scrutinize closely to determine if there is any possible coverage related to the coronavirus include: (1) crisis management coverage, (2) coverage for interruption by communicable disease, or (3) cancellation of bookings coverage.
It is important to review these extension provisions closely and also determine if coverage exists for upstream and downstream losses, which includes losses from customer fear and closure of suppliers.
Policy Interpreted As A Whole
No matter the language of the exclusions and extensions, the entire insurance policy should be considered as a whole to determine if any losses from the coronavirus are covered. Nonetheless, if an insured seeks business interruption coverage due to “damage” at its property arising from coronavirus, there must be a causal relationship between the physical loss or damage.
Civil Authority Provision
It is likely that the coronavirus has not caused direct physical damage to property. Therefore, businesses may assert other areas of coverage in their insurance policies. “Civil authority” coverage does not require direct physical damage to the insured’s property. Rather, this type of coverage in an insurance policy is based on the interruption of the insured’s business as a result of an order of civil or military authority as a result of physical damage. Essentially, a government order impairs access to the insured’s property as a result of insured physical damage. This coverage is still contingent on physical damage but the loss is not directly related to the physical damage. The insurance company will still likely deny this claim because there must still exist physical damage, albeit contingent. The insurance company will argue that the “fear of contagion” is not sufficient.
Civil authority coverage usually depends on physical damage rather than fear of contagion. For example, during the 9/11 tragedy the government decided to close off air traffic. When reviewing rejected business insurance claims during that time, the courts decided that the loss was due to fear not actual property damage. The insurance companies were successful in asserting that the civil authority provisions did not apply.
Contingent Business Interruption (CBI) Provision To Assert In Your Business Insurance Claim
A “Contingent Business Interruption” provision may be another possible way to argue that coverage should be provided for the losses due to coronavirus. Contingent Business Interruption insures against a company’s lost business in the event that the insured’s customer or supplier sustains physical loss or damage at their property. For instance, a business may be successful with an insurance claim if the business was dealing with a factory in China that was shut down. The insured will have to demonstrate that the shutdown was due to physical damage at the Chinese factory. It will be a challenge to prove the reason for the shutdown at a supplier’s factory or at the customer’s location. In regards to the coronavirus, most business losses are due to customers being in quarantine, not physical damage. Moreover, many policies have sub-limits for Contingent Business Interruption coverage, waiting periods, and high deductibles.
Extension of Coverage For Ingress And Egress To Assert In Your Business Insurance Claim
Some insurance policies provide an extension of coverage for the insured’s loss due to the necessary interruption of the insured’s business that resulted from the prevention of ingress to or egress from the insured’s property. Insureds seeking coverage under an ingress/egress provision must show that the property cannot be accessed due to actual insured physical loss or damage. With respect to coronavirus claims, it may prove challenging to demonstrate that any ingress is prevented due to physical damage. Rather, it is more likely that people are afraid to enter the business due to the possibility of person-to-person contagion.
Other Possible Coverages To Assert In Your Business Insurance Claim
Some policies provide coverage for Logistics Extra Costs or Attractive Property Coverages. However, these provisions will also require the insured business owner to tie the loss of income to an insured physical loss or damage. The insured will still need to prove that its lost income is due to actual physical damage. In regards to coronavirus claims, this will be a difficult burden to satisfy.
If there is no direct damage to the insured’s property due to the virus, the insured may look to extensions of coverage for indirect losses arising from the virus. The insured’s loss of business must still be causally connected to a physical loss or damage. Courts usually interpret the language “directly resulting from ” as a requirement for the insured to demonstrate a linkage between property damage and the claimed time element loss.
Lawyers must zealously advocate for the insured business owner and create persuasive arguments for coverage in response to the coronavirus. There must be a careful analysis of the specific policy terms and conditions as they apply to the current coronavirus pandemic crisis. Contact The Sterling Firm at 310-498-2750 to speak with an experienced attorney.