The coronavirus (COVID-19) outbreak was already delivering significant economic impacts across industries; now the World Health Organization (WHO) has officially declared the outbreak a global pandemic. This will likely result in further—perhaps even extended—economic fallout for nearly every industry.
Does this mean you should turn to your business interruption insurance for relief?
There will likely be increased claims against these policies, but whether these claims will be covered depends on several factors—beginning with the terms and conditions of the specific insurance policy and the circumstances surrounding the alleged loss.
Broadly speaking, business interruption insurance is a product that covers loss of income suffered by a business as a result of disruptions to their operations. Do coronavirus-based disruptions trigger coverage?
Understanding your insurance policy
While every policy varies, typically business interruption coverage is included as part of a company’s commercial property insurance and applies when the policyholder suffers “direct physical loss of or damage to” insured property as the result of a covered cause of loss.
Typically, businesses think in terms of traditional physical loss, such as that caused by a hurricane or a fire, when they consider a business-interruption insurance claim. However, some courts, while not wholly consistent across jurisdictions, have held that commercial property that becomes uninhabitable or otherwise not fit for use qualify as having suffered the requisite physical loss and, depending on the specifics of the policy, could be covered. Under this reasoning, there is a good argument that property that is rendered uninhabitable as a consequence of the virus falls within the scope of coverage.
Other forms of business interruption coverage
In addition to the standard language discussed above, some forms of business interruption coverage apply when there is an interruption caused by a disruption to the business’ customers or suppliers. Thus, for instance, if a key supplier is unable to provide essential component parts as a result of a covered cause of loss impacting the supplier’s property, then a policy holder may be able to recover for the resulting loss.
Other policies provide coverage for interruptions resulting from a “civil authority” prohibiting access to the insured’s premises as a result of damage to other property caused by a covered loss. Coverage of this sort could certainly come into play as governmental reaction to the spread of the virus ramps up.
Some policies expressly extend coverage to losses caused by “communicable or infectious diseases” without requiring physical damage to the insured’s property.
Much will depend on the wording of your policy, its exclusions/inclusions, and interpretation—but careful, thoughtful documentation during any period of business disruption may be critical.
Review your insurance policies now—and meticulously document pandemic-related business impacts
While answers to insurance questions surrounding the coronavirus pandemic are highly individualized, reviewing your policies now will allow you to evaluate your options and properly document and claim any covered disruptions.
To have your policy properly reviewed, or for specific advice regarding your coronavirus-related insurance concerns, please contact the Tonkon Torp attorney with whom you normally consult.