Many insureds have heard the insurance companies’ latest mantra that:
- business losses suffered in connection with the recent responses to COVID-19 are not covered by policies with business interruption coverage;
- such losses are not caused by the type of physical damage required to file a successful claim; and
- exclusions for losses in connection with viruses are ironclad.
Certainly, there will be opposition by carriers to recovering business interruption losses in connection with COVID-19, and we expect insurance companies to swiftly deny such claims. The legality of such denials is not, however, as certain as insurance companies would have you believe. In addition to filing a proof of loss and a claim with their insurer, insureds can take the following three actions today to best protect their rights.
1. Analyze your policy and review the governing law
Most fundamentally, any blanket statement purporting to assert the legal outcome for all claims under all policies in all situations should be taken with a large grain of salt. Different policies have different terms, and the factual circumstances underlying each loss can vary dramatically from case to case. For example, if a policy expressly defines a relevant term – for example, “physical damage,” which is sometimes required to recover business interruption losses – the term might be defined in a manner that presents a potential barrier to recovery. But if your policy does not expressly define the same term and that term presents an ambiguity in the specific context of your business’s loss, the term may be construed in favor of coverage. Moreover, courts in different states may construe such terms differently, so it is important to check which law governs your policy.
2. Make note of virus exclusions
The law interpreting virus exclusions is underdeveloped. While these provisions, which appear in some, but not all, policies, may present a coverage issue, there is not clear precedent for the circumstances in which many businesses now find themselves. Moreover, many policies contain civil authority provisions which may provide coverage for losses suffered in connection with a governmental order prohibiting access to a covered location. Issues of what constitutes physical damage or loss will likely arise in this context, too. Again, checking the specific terms and construction of your insurance policy, and how they operate in the specific context of your business’s losses, is imperative.
3. Stay abreast of legislative developments
The political landscape regarding COVID-19 is shifting quickly. New Jersey lawmakers are considering a bill to force insurance companies to cover business interruption losses caused by COVID-19. The mayors of certain cities, including New York, have issued orders specifically citing property damage from COVID-19 as the basis for mandating business shutdowns. Although future developments cannot be known, identifying every potential basis for recovery under your business’s policy will facilitate any possible recovery as this situation continues to change.
Insurance companies hope that insureds will not file claims, so they can argue later that they were not given timely notice and that the insured lost any future right to recovery under the policy. If the law develops unfavorably for insurers, fewer claims now means less liability for wrongful denials of coverage later. Although we expect that filing a claim is likely to result in a quick denial of coverage at this stage, doing so is an effective way to secure your business’s rights for years to come as circumstances and governing law continue to evolve. Additionally, filing a proof of loss is usually required under these policies. Regardless of whether a claim is denied or not, the proof of loss should be filed. Under Michigan law, if an insurer does not pay the claim within 60 days of submission of the proof of loss, the carrier is liable for 12 percent penalty interest should the claim ultimately be allowed.
Varnum has organized an experienced and knowledgeable team that is tracking these and other developments in response to COVID-19. If you are seeking guidance with respect to your business interruption insurance policy or other matters, we would be pleased to assist in identifying all potential means of insurance recovery and strategies to protect your business’s rights.