As the nation hunkers down at home—some practicing voluntary social distancing and others responding to government “shelter in place” orders—businesses grapple with the downward spiral their profits are taking from COVID-19. Many non-essential businesses have been ordered closed, while those that continue with operations serve a drastically thinned customer base.
Even economists seem to be struck speechless regarding the length and extent of possible impact this unanticipated pandemic will wield on the economy—mostly because their would-be models lack a definitive end to the pandemic itself.
And so, the question looms: How can businesses hope to survive the economically crippling effects of COVID-19? Florida businesses, in particular, struggle with the question, with tourist-dependent hotels and restaurants taking financial hits day after day.
One answer may lie in your commercial business interruption insurance. However, cutting through the complexities of coverage will send even the savviest business owner into uncharted waters. It is a good idea to review your business interruption or business loss policy with an attorney to make sure you are understanding the policy accurately and availing yourself of any opportunity for coverage.
Understanding Commercial Business Interruption Insurance
In many cases, businesses have been ordered to shutter to control the COVID-19 spread. Even essential businesses, like restaurants and grocery stores, though not ordered to close their doors, are suffering the financial strains of dramatically decreased foot traffic. Unfortunately, this virus does not care that government orders and social distancing efforts are hurting your revenue, and that you still need to pay your building lease and other monthly bills, despite the fact that you are not making money.
This is where business interruption insurance steps into the picture. This coverage may reimburse your company for many of the costs and losses you are suffering as a business due to COVID-19-related closures and other restrictions resulting from the pandemic.
How Business Interruption Insurance Works
Business interruption service is often purchased as an add-on for commercial property insurance, business owners’ policies (BOP), and commercial package policies (CPP). Check your business’ insurance policy to see if it includes the business interruption extension. If so, you may be in luck.
Traditionally, business interruption insurance reimburses businesses for the aftermath of physical property damage and physical losses caused by storms, fires, and other damaging events. In these cases, the insurance covers your lost revenue; fixed expenses you have to pay, despite being closed; and operational expenses for setting up shop from a temporary location, if that option is relevant.
Filing a Claim
Filing a claim for these losses typically involves establishing the amount of potential revenue your business has lost because of the event. Your insurance adjuster will valuate this loss by reviewing your company’s profit and loss statements, previous tax returns, non-continuing expenses, and projected sales.
This coverage does have its limitations. In the case of a commercial property policy, only the events described in the core coverage are covered by a damaging event. Furthermore, your business interruption coverage may impose time limitations and exceptions that you will need to ensure cover your situation.
How “Physical Damage and Loss” Meshes With a Virus
Time limitations are the least of a business’ problems when it comes to COVID-19-related losses. The real problem stems from business interruption insurance reimbursing only losses caused by “physical damage” to business property.
However, it has been argued that a business’ property can be found to be damaged by a virus if the property is contaminated and therefore not functional. This argument held up in Cooper v. Travelers Indem. Co., where a court found a well’s contamination with E. coli bacteria substantiated a claim for the business owner’s loss of income.
It is quite possible that businesses may similarly pursue coverage despite the physical damage causation clauses in their policies—even if they cannot show that the coronavirus actually contaminated their properties—by arguing that the fear of contamination suffices as cause for coverage.
Buying Insurance While the House Is Burning
Peter Lacovara is the senior vice president of an alternative risk practice that developed a policy that specifically covers business interruption in case of a pandemic. Needless to say, he is busy fielding calls these days from companies hoping to buy a policy. Unfortunately, it is too late to buy such a policy and derive any benefit from it due to COVID-19-related business interruptions. “You can’t buy insurance for your house when it’s already on fire,” Lacovara told interviewers in an April 3, 2020 article in Insurance Journal.
Risk managers find themselves in a difficult spot. Even with customized policies that waive the physical damage requirements tied to most business interruption coverage, businesses find themselves locked out due to communicable disease exclusions. These exclusions appeared after insurers emerged from epidemics and pandemics like Ebola, Swine Flu, and SARS.
The Option of Filing a Lawsuit: Exclusions and Civil Authority
Whether or not your insurance will reimburse your losses during COVID-19 all comes down to how your business interruption coverage is worded. In some cases, the wording—or lack thereof—in some businesses’ insurance has left the carriers wide open for lawsuits.
According to Carrier Management, a New Orleans restaurant is suing its insurance company, Lloyd’s of London, because its all-risks policy does not specifically exclude income losses resulting from a viral pandemic but does cover loss of income from shutdowns by a civil authority. A California restaurant and Oklahoma casino have filed similar lawsuits against their insurance companies.
Civil Authority Clauses
Civil Authority coverage comes into play when a government entity prohibits access to the insured business’ property. Such orders have historically followed natural disasters and other life-threatening events. The civil authority clause requires that the business’ income losses be a direct result of the civil authority’s order—not the natural disaster itself.
Florida businesses can turn to any orders issued by state or local governmental authorities to determine whether the civil authority clause pertains to their income losses. Keep in mind that on March 22, 2020, Broward County issued its Administrator’s Emergency Order 20-01, based on the danger of the coronavirus spreading, the propensity of the virus to spread person to person, also because the virus can cause physical damage to the property by attaching to surfaces. Furthermore, on April 1, 2020, Florida Governor Ron DeSantis issued a Stay at Home order for Florida residents.
Consider these actions of civil authorities when talking to your attorney about your business interruption insurance coverage.
A civil authority clause usually imposes a 72-hour waiting period before a business can trigger its business interruption insurance claim.
Lawmakers Calling on Insurance Companies to Cover COVID-19 Losses
In March 2020, a bipartisan group of lawmakers penned a letter to the American Property Casualty Insurance Association, National Association of Mutual Insurance Companies, Independent Insurance Agents & Brokers of America, and Council of Insurance Agents and Brokers, requesting that they make COVID-19-related financial losses part of their commercial business interruption coverage for policyholders.
The legislators urged the carriers to act swiftly, pointing out that the financial strains that businesses have suffered from COVID-19 meet the threshold for business interruption insurance.
The Law Offices of Anidjar & Levine Can Help You Work Through Your Business Interruption Insurance
No matter what your business, your insurance coverage, or your income losses, the Law Offices of Anidjar & Levine want to help you understand your options for recovering financially from COVID-19.
Call our office today at 1-800-747-3733 for a free consultation.