Coronavirus business interruption coverage remains top of mind for many different businesses affected during the pandemic. Subllimits are an aspect of these claims that should be thoughtfully considered during this time. Knowing how sublimits work and potentially affect business interruption claims is an important element to consider when pursuing coverage related to COVID-19.
What is a Sublimit?
A sublimit is a limitation within an insurance policy on the amount of coverage available for a specific type of loss. Sublimits place a maximum on the amount of coverage available to pay for a particular type of loss.
For instance, under a commercial property policy with a $2 million limit applicable to loss from all other causes, there may be a $100,000 sublimit on coverage for flood loss, a $500,000 sublimit on earthquake loss, and a debris removal sublimit that is 25 percent of the direct damage loss amount. The sublimit is the most money an insured can collect for the type of loss sustained to which the sublimit applies.
With regard to COVID-19, it’s important to note a sublimit may only apply to certain damages. Sublimits typically only apply to losses that fall within the terms listed in the policy. If the language is ambiguous, courts usually must construe it in favor of coverage.
Sublimits and Business Interruption Insurance
When it comes to business interruption claims, the use of sublimits is slightly different than under other policies. Typically, property insurance covers the insured’s property against the risk of physical loss or damage.
For business interruption or “time element” losses, policies often provide coverage for loss of earnings or profits and extra expenses for an identified period of time resulting from a direct physical loss of or damage to the insured’s property. Many policies extend business interruption coverage to situations that don’t involve physical loss or damage to the insured’s property itself. Sometimes, those extensions of coverage are subject to a period of restoration that effectively caps the recoverable proceeds for that coverage. So, although there might not be a specified dollar amount as a sublimit, the period of restoration acts as one.
Civil authority coverage
Civil authority coverage is applied when a government body prohibits access to certain areas or businesses following a natural disaster or other large-scale event. Coverage is designed to compensate the insured for losses sustained during the time access to the businesses is prohibited by an order of civil authority. The closures or lack of access must be due to damage to the covered property on the described premises or a property adjacent to the premises as described in the insured’s policy.
Civil authority endorsements typically cover a time period of either 14 or 30 consecutive days. The carrier may impose a waiting period before coverage applies; this is typically up to 72 hours. As with other business interruption coverage extensions, there might not be a specified dollar sublimit, but rather, a temporal measurement that caps coverage.
Decontamination costs and communicable disease clean up
A decontamination cost extension commonly addresses the enforcement of either a government mandate due to the actual presence of contaminants following the insured’s physical loss or damage to the insured’s property by a covered cause of loss.
A communicable disease cleanup extension is similar, and provides coverage for reasonable and necessary costs for the cleanup, removal, and disposal of affected portions of the covered property due to the actual presence of a communicable disease on the premises. While a government order can also trigger this type of coverage, it is often subject to an annual aggregate sublimit, which may combine cleanup costs with other categories of loss.
COVID-19 Insurance Claims Attorneys
As claims relating to COVID-19 and the interruption of business operations continue to rise, so do many questions about available coverage as companies try to recoup losses due to mandated closures. Having the insight of a seasoned insurance claims attorney can help businesses get back on track. If your business has been impacted by COVID-19 closures, contact the team at Raziner Law today to discuss your needs.
