Client Alert: Insurance Coverage for COVID-19 Revenue Losses

Business losses are mounting from COVID-19 precautions, including from shuttering your premises as a public health precaution or in response to a shutdown order.  Particularly for public-facing brick and mortar operations, alternative means to sustain revenue can be deficient or even non-existent.
We recognize that many businesses are looking at their insurance coverage as a potential source for reimbursement of lost revenue.  This alert briefly discusses several types of coverage generating claims, and recent developments related to the coverage issues implicated by the pandemic.

Business Interruption Coverage
Business interruption coverage may be implicated by COVID-19 claims.  Business interruption coverage is a common aspect of commercial property insurance, but insurers are pointing to the physical damage to the insured’s property as a basis for denying claims.  It is too soon to know how these coverage claims and defenses will fare, but historically courts have split over how “physical” and how much “damage” has to occur to premises before this coverage applies.  Additionally, as a results of the SARS epidemic years ago, many commercial property policies now have a specific exclusion for virus or bacteria related damage.  The standard form of that exclusion, when it appears in policies, says that the insurer “will not pay for 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.”  Insurers who have that exclusion in their policies rely on both the virus exclusion and the absence of physical damage to property to deny coronavirus claims.

Civil Authority Coverage
Many commercial property policies also provide civil authority coverage for instances when government shuts down an insured’s business.  This coverage is keyed to whether there is physical damage to property adjacent to the insured premises.  Historically, courts interpreting civil authority coverage again split on how much physical damage to any property is required to trigger this insurance.  The disease exclusion applies to civil authority coverage, for policies which have that exclusion.

Coverage through Legislation or Insurance Regulation
Efforts have already arisen in some states to compel insurance coverage for COVID-19 business losses legislatively or by insurance regulation.  Whether those stirrings result in government action and how courts treat that action remains to be seen.  Federal legislation is also on the drawing board which would enact a new insurance regime for epidemics in future insurance coverage, modelled on the post 9/11 terrorism insurance.

Current claiming considerations

Some insureds seem to be making the calculated decision to make a business loss claim even if their policy seems unfavorable, in order to preserve the claim if events become favorable to the claim. Others have filed lawsuits asking courts to declare in advance that a shut-down constitutes a form of physical damage which is covered as a business interruption loss.
These are early days for interpreting business interruption and civil authority insurance in the context of COVID-19.  Whether your insurance applies requires consideration of the language in your policy, and then the facts specific to your business and its experience with the COVID-19 shut down or business reduction.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.