All businesses are experiencing the effect of COVID-19, new challenges emerge daily if not hourly, and the long-term effects of the disease on our communities and businesses are unknown. Now is the time to understand the nuances of insurance coverages as they relate to Coronavirus losses.
Many commercial property policies contain business income or business interruption coverages. This type of coverage is intended to return to an ongoing business profits it has lost, if there had been no interruption.[1] Typically, businesses losses must result directly from a “covered peril” and commonly cover direct physical injury or damage that causes the interruption.[2] Businesses whose operations are vulnerable due to supply-chain or customer-related losses may have coverage when their business operations are disrupted due to circumstances directly affecting such third-parties.
Policies may expressly exclude coverage for losses caused by “pollution,” and, depending how such insurance clauses are written, such exclusions may or may not reach the threat of communicable diseases.[3] Some policies may contain express exclusions for specified communicable diseases. Policies may implicate the effect of government orders or shut downs on businesses.[4]
Event cancellation insurance may cover certain expenses and loss of net profit, usually when the cancellation is beyond the insured’s control, though such insurance may or may not be subject to exclusions related to the spread of communicable disease or government orders. In the case of leased premises, rental insurances may be implicated. In addition, businesses should review their commercial general liability coverages in the event that third parties make claims against them related in some way to the spread of the disease.
Every policy is different. Coverage depends on many different variables, including the nature of the coverages in place, the timing of any claims made and how carefully claims are presented to the carrier to maximize coverage. Most important is the express language that the policies utilize.
[1] See, e.g., Dictiomatic, Inc. v. U.S. Fidelity & Guaranty Co., 958 F. Supp. 594 (S.D. Fla. 1997) (“Business interruption insurance is intended to return to the insured’s business the amount of profit it would have earned had there been no interruption of the business.”)
[2] See, e.g., National Union Fire Ins. Co. of Pittsburgh, Pa v. Texpak Group N.V., 906 So. 2d 300 (Fla. 3d DCA 2005) (policy did not cover losses from business interruption where coverage existed only if the losses resulted from damage or loss to real or personal property).
[3] Cf. Nova Cas. Co. v. Waserstein, 424 F. Supp. 2d 1325 (pollution exclusion reached exposure to indoor pollution, “microbial populations,” “microbial pollutants”); with Westport Ins. Corp. v. VN Hotel Group, LLC, 761 F. Supp. 2d 1337 (M.D. Fla. 2010) (pollution exclusion did not reach Legionella bacteria).
[4] See, e.g., Dickie Brennan & Co., Inc. v. Lexington Ins. Co., 636 F. 3d 683 (5th Cir. 2011) (civil authority coverage applied to situation in which access to insured’s property was prevented by order of civil authority) ; Kilroy v. United Pacific Ins. Co., 608 F. Supp. 847 (C.D. Cal. 1985) (coverage applied where a government ordered offices vacated when determined unsafe, following earthquake); Southlanes Bowl Inc. v. Lumberman’s Mutual Ins. Co., 46 Mich. App. 758 (Mich. Ct. App. 1973) (losses stemming from closure of restaurants, taverns, motels, etc. were forced to close due to a declaration of state of emergency following the assassination of Dr. Martin Luther King, Jr.).
