Following the outbreak of the novel coronavirus or COVID-19, many businesses have had to make difficult decisions regarding daily operations.
While some restaurants, for example, can continue operations exclusively with take-out and/or drive-thru options, other small businesses have had to close their doors entirely.
Many Business Interruption Insurance Policies Exclude Viruses
With all the uncertainty surrounding the future of these businesses, one may assume insurance coverage would help; unfortunately, however, many business interruption insurance policies contain virus-related exclusions leaving them with no recourse.
Insurance Policies Changed in the Aftermath of SARS
Global insurance policy changes made in the aftermath of the SARS outbreak in 2002-2003 will definitely leave some COVID-19 affected businesses without coverage.
SARS infected roughly 8,000 people, mostly in Asia, and now is viewed as having foreshadowed many of the effects of COVID-19.
Though many businesses affected by SARS were able to file business interruption insurance claims, a $16 million payout to hotel chain Mandarin Oriental International was a turning point for insurers.
Virus and Bacteria Losses Were Excluded
Because of the influx of business interruption claims during and after the SARS outbreak, beginning in around 2006, many insurers added exclusions to standard commercial policies that exclude coverage for any losses caused by viruses or bacteria.
Now this policy language potentially allows insurance companies to avoid paying out hundreds of billions of dollars in business interruption claims because of the COVID-19 pandemic.
What is an Insurance Policy Exclusion?
Most insurance policies provide coverage for “all risks” unless the risk is excluded or limited in the policy. Insurance policy exclusions are provisions that eliminate coverage for a certain type of risk.
Exclusions ultimately work to narrow the scope of coverage provided by an insurance policy. Insurers use exclusions to carve away coverage from risks they are unwilling to insure.
With COVID-19, many business owners assumed having a business interruption insurance policy would ensure they got paid. Unfortunately, this is not the case for many, as business interruption policies often contain a virus and bacteria-related exclusion.
Virus and Bacteria-Related Insurance Policy Exclusions
Exclusions for loss of business due to virus or bacteria have been incorporated into many commercial insurance policies since the SARS outbreak.
These exclusions directly state 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.
While many business interruption policies exclude coverage for virus and require physical damage in order to qualify for a claims payment, others can be ambiguous regarding the terms of coverage.
Recently, a casino chain in Oklahoma filed a lawsuit against Lloyds of London and AIG after seeking coverage under its business interruption policy.
The casinos within the Native American gaming industry and the Chickasaw tribe have a business interruption policy that is ‘all risk;’ however, the policy language does not specify whether or not it covers pandemics or coronavirus-related illnesses that require a shutdown of operations.
What happens when there is no Virus Exclusion?
In an “all risks” insurance policy, the insurance company must specifically state in writing any risk that it intends to exclude.
And while it is never quite this simple or straightforward, in general, if a risk is not excluded, it is potentially included, subject to any other policy requirements.
When it is unclear if the risk is included or excluded, there may be ambiguity; and in most states, a policy ambiguity is construed against the insurance company and in favor of coverage.
As a law firm that has extensive experience handling first-party insurance recovery matters, including business interruption claims, the very first thing we look for in evaluating a COVID-19 business interruption claim is the presence of the virus exclusion.
When there is no virus exclusion, there may be coverage, depending on the other terms of the policy.
Communicable Disease Coverage
Organizations impacted by COVID-19 or other pathogens could carry communicable disease coverage; however, this coverage also includes many major exclusions.
For instance, some policies predetermine a maximum timeframe (amount of days) within which claims are reimbursable even with communicable disease coverage.
Furthermore, many policies limit the amount of recovery to things like clean up and remediation costs, reputation management, and actual physical repair costs, and specifically exclude loss of revenue inflicted by the outbreak in the policy.
Coverage Can Be Prohibitively Expensive
Specific, pre-negotiated requests for coverage of specific losses can be made prior to a policy going into effect. Unfortunately, these may be cost-prohibitive for many businesses and the need for coverage will predate any language added subsequently.
Contingent Business Interruption Insurance Policies
Contingent business interruption insurance (CBI) policies can include loss of commerce caused by disease or other related disasters.
A CBI could cover loss of revenue due to disruption from lack of customers, along with the cost to repair or replace equipment, sanitization, supply chain disruptions, or losses due to business proximity.
Again, however, these clauses must be incorporated prior to the policy being enacted. If not, the insured will only continue to grapple with business interruption damages.
Has Your Business Been Impacted by COVID-19?
If your business has been directly impacted by COVID-19, it is important to review your current insurance policies and document coronavirus-related business losses and expenses.
The insurance industry is hard at work trying to convince its policyholders that there is no coverage for COVID-19 business losses – regardless of the language of the insurance policy. In some cases, they are using lofty estimates intended to derail business interruption claims.
The reality is that may policies will in fact exclude coverage due to the virus exclusion. But many will have endorsements designed to provide coverage for communicable disease or pandemic events, and others may simply be silent as to whether they do or do not cover virus outbreaks.
At Raizner Slania, we have extensive experience in actually reading insurance policies to verify whether there is or isn’t coverage. When there is coverage, we have for decades helped business owners to hold their insurance carriers accountable when they wrongly delay, deny, or underpay valid claims for coverage.
If you or someone you know has a question or concern relating to business interruption insurance coverage and the coronavirus contact us today to learn more.