We as a community—a global community—are in the midst of an unprecedented situation. Entire economies were shut down for several months while nations sought the best way to manage and navigate a deadly virus amid a global pandemic. Governments, including our own, temporarily shut down many businesses which were unable to operate from home. Most business owners—even some who were able to work remotely—lost income as a result of this shutdown. Many are still experiencing financial struggles and reductions in sales.
Many of these businesses may have coverage available to them to cover this economic loss. This recovery would typically be found in either a “Business Interruption” clause of the policy or a “Civil Authority” clause of the policy.
Business Interruption Coverage
This protects against economic losses that occur due to a business being unable to operate and typically covers the loss of revenue that would have been realized if there was not a business interruption and the business was able to operate normally.
In most instances, to recover under this insurance, the business would need to show that the income loss occurred as a result of physical damage to the insured property—the physical structure of the business. This typically occurs when, for example, a machine breaks down making business impossible. Few cases explore the relationship between “damage” caused by a virus and income continuation coverage. However, one federal case out of the 8th Circuit indicates that if the policy language, and the circumstances of a loss, physical contamination of property may constitute physical damage if there is sufficient proof of contamination. That case dealt with losses associated with contamination of mad cow disease.
The difficult part with business losses “caused by” a COVID-19/coronavirus closure would be proving that a business was actually contaminated with coronavirus.
Civil Authority Coverage
Many commercial property policies include coverage for business losses caused by forced closure of property by a governmental authority. This typically applies in a situation where a business is unable to access its own property due to a civil order resulting from physical damage to nearby property—for example in the case of a fire to a neighboring business. Thus, like Business Interruption Coverage, the business may need to establish that a neighboring property was physically damaged by COVID-19/coronavirus—easier, but still difficult.
By definition, obtaining coverage for losses associated with COVID-19/coronavirus is a new and barren landscape. In most instances, even trained lawyers are having a difficult time evaluating policies and applying the policy to facts applicable to a certain business or industry. Coverage is certainly not going to be established under all policies or all sets of facts. In fact, I venture that most policies will not apply to cover economic losses experienced by businesses. But some will and the covered losses may be substantial.
The insurance industry is proactively taking steps to limit liability/exposure for these types of claims. Thus, now is the time for businesses to review their policies and assess whether coverage may be construed to provide coverage for losses associated with COVID-19/coronavirus.