The challenges surrounding business interruption insurance coverage amid the new coronavirus (COVID-19) remains a major concern for business owners. While pandemic coverage issues have been incredibly challenging, as Texas and other states across the US begin reopening businesses across many different industries, new challenges have emerged. One such challenge involves whether businesses will remain covered under existing commercial property insurance policies in the event they remain unable to reopen following the lifting of governmental stay at home orders.
Commercial Property Insurance
Commercial property insurance typically covers business losses in the event the property suffers damage due to covered perils like fire, theft, or a natural disaster. A variety of industries, including manufacturers, retailers, service-oriented businesses, non-profit organizations, and hospitality, among others, typically carry this type of insurance.
In conjunction with a business interruption policy, commercial property insurance generally covers any physical loss or damage to the property, while also accounting for a time constraint for business interruption losses.
Business interruption coverage is triggered by the discovery of physical loss or damage. The phrase “physical damage” has been broadly interpreted to include more than structural damage resulting from a natural disaster event. It can also include conditions that make the property unusable, such as smoke from a fire at an adjacent property. However, the ability to determine physical damage related to COVID-19 has been a source of contention because many policies do not cover losses due to pandemics or viral events.
If business interruption coverage contains a civil authority provision, it is usually only triggered by the closing of a business by order of a civil or government authority along with resulting physical loss or damage. As state governments begin to lift stay at home orders and reopen businesses, some businesses that were forced to close remain unable to reopen their doors.
Property Insurance Policies and Reopening During COVID-19
The impact of COVID-19 has been incredibly devastating for business owners. While some businesses can reopen at a limited capacity per the order of state officials, there are just as many that will continue to keep their doors closed. Whether as a means to continue to protect staff members from contracting the virus or simply because it would be impractical, businesses have a variety of reasons to stay closed amid reopening measures. Unfortunately, insurance coverage concerns will likely only continue for those that chose to keep their doors closed – even if they are doing so for the health and safety of their employees and customers.
This is because most property insurance policies include a provision that causes coverage to lapse in the event the property is vacant for a period in excess of 30 days. Insurers generally have not enforced this limitation while businesses were under mandated COVID-19 closures that prevented them from being open to the public. In most instances, policies would continue to provide coverage even if the buildings were vacant. However, this becomes murky when or if coverage lapses when a business is permitted to reopen due to closure orders being lifted.
Property Vacancies Can Cause Insurance Coverage to Lapse
Permission to reopen does not necessarily mean a business has the ability or desire to reopen. For instance, orders limiting how many people can enter a building or be served at one time make it cost-prohibitive to reopen certain businesses even though states permit it. On the other hand, some businesses may not be able to allow for social distancing measures, while others may decide the risks of opening outweigh the potential benefits.
If a business remains closed for longer than 30 days after COVID-19 orders are lifted, its property insurance coverage can become at risk because a vacant commercial property actually increases both the risk of loss to the building and the potential dollar value of the loss. With no one on the premises to find a leak, for example, properties aren’t being inspected as regularly as they were before the pandemic, which can lead to a small leak causing significant damage before ever being discovered.
Other potential risks include vandalism to the outside of the business and the possibility of intruders entering the premises or causing physical damage while the property is vacant. With a vacant property, there is both an increased chance of loss and a higher risk that a loss could be catastrophic. For these reasons, insurance policies often include language that causes the policy to lapse if the property remains vacant in excess of 30 days—leaving many business owners who remain closed longer than 30 days after the expiration of government closure orders without coverage.
Texas COVID-19 Insurance Claims Attorneys
As businesses decide to reopen or continue to stay closed amid COVID-19, insurance coverage remains a top of mind issue. At Raizner Law, we understand just how difficult these situations can be for business owners. We work to hold insurance companies accountable for wrongfully delaying or denying insurance coverage to those who need it most. If your business needs assistance with a COVID-19 related property insurance claim, contact us today to see how we can help you.