It’s hard to imagine a bigger interruption to business than the COVID-19 pandemic. Under some insurance contracts, it might be a little too big.
In a rapidly emerging practice area for large and small firms alike, attorneys increasingly are counseling business owners who have been denied coverage under the “business interruption” portions of their commercial insurance policies.
Such policies generally are designed to cover losses that businesses incur when their property is damaged by, say, a hurricane or fires. But many insurers say such polices are not meant to apply in the case of a virus.
“Pandemic outbreaks are uninsured because they are uninsurable,” David A. Sampson, president and CEO of the American Property Casualty Insurance Association, said in an April 6 statement.
But for businesses that have spent a small fortune through the years on property insurance, that’s a tough line to swallow.
“From the policyholders’ perspective, while yes it’s a global pandemic, for them this is a tool that they spent a lot of money on that they hope is going to be available to offset their losses and get the benefit of what they purchased,” said Lauren Tucker McCubbin, chair of the insurance recovery litigation practice at Polsinelli.
Monsees & Mayer, a plaintiffs’ firm based in Kansas City, has been fielding similar inquiries. Partner Reed Martens said the firm has a great deal of experience in winning coverage for bodily injury claims.
“This is no different, although the loss is not an injury loss, it’s a business loss,” he said. “It’s an opportunity we think to help out folks on issues that we know very, very well.”
Whether such cases will be successful will depend on the language of the particular policy. Some specifically exclude coverage of virus-related damages. Others have pollution exclusions that deny coverage for damage from “contaminants,” a term that could be interpreted to include COVID-19.
Many policies provide “civil authority” coverage, however, which is intended to apply when access to the insured’s property is prevented by an order of civil authority.
Though perhaps drafted with something in mind such as a gas main break that forces a neighborhood to be evacuated, such provisions might be found to cover the forced shutdowns that state and local officials have ordered during the coronavirus crisis.
“They weren’t affected by the virus. The business wasn’t shut down by the virus. The virus didn’t invade their businesses,” argued Ryan D. Frazier, a Monsees & Mayer attorney in Springfield.
“We’re trying to get creative in looking at these polices as a whole and not just seeing a virus exclusion and saying ‘no coverage.’”
Insurers have taken different approaches to the issue. Travelers posted a letter to New York property insurance policyholders on its website explaining that losses from cancellations, suspensions and shutdowns brought by the coronavirus “are not a result of direct physical loss or damage.”
“Accordingly, business interruption losses resulting from these types of events do not present covered losses under our property coverage forms,” the insurer said.
The Hartford posted a similar message on its website, saying its policies were not designed for viruses.
“Every situation, however, will be evaluated on a case-by-case basis and reviewed based on the underlying facts, policy language and applicable law,” the company added.
Lawmakers in New York, Massachusetts, New Jersey and Ohio have proposed bills that would require insurers to cover claims due to shutdown orders. In a March 25 press release, the National Association of Insurance Commissioners said forcing insurers to retroactively pay COVID-19 business interruption claims would “create substantial solvency risks for the sector.”
The group estimated that losses for businesses with 100 or fewer employees is as much as $431 billion per month, dwarfing the amount raised through annual premiums.
During a webinar last week, Alex Roje of Lathrop GPM’s insurance recovery practice scoffed at the insurance industry’s predictions of doom, saying that limitations within the policies and litigation of claims would keep costs under control. She advised businesses who are suffering losses to file a claim even if their insurance broker advises against it.
“So be it. Let them do that. It doesn’t cost you anything to make a claim,” Roje said.
McCubbin noted that businesses seeking a loan or grant might have to certify that they don’t have coverage for their losses.
“Sometimes those denials can help you cross that T and dot that I,” she said.
It doesn’t appear that any business-interruption litigation has been filed yet in Missouri, and any court rulings could be months or years away. Martens said he’s trying to manage his clients’ expectations.
“We have to be very clear with them that this is a significantly uphill battle, and the chances that we could be successful for them is very low,” he said.
Roje advised that businesses “don’t let the tail wag the dog.”
“Do what you need to do on the assumption that you’re not covered, and pursue coverage along a separate line,” she said. “Don’t let coverage dictate how you react to this.”