The current COVID-19 crisis has caused many business owners to look to property/casualty or comprehensive insurance policies for relief. However, as quickly as these claims are being submitted, insurance companies are processing denials. Whether your insurance policy covers your business for losses related to the COVID-19 crisis involves a complex analysis which requires a careful review of your policy, and an analysis of the specific facts involved in your claim.
Business interruption insurance is coverage that replaces business income lost in the event of a disaster, the typical event being a fire or natural disaster. Covered losses typically include lost profits, operating expenses, payroll, taxes and loan payments which would have come due or would have been received during the period of suspension of operations. In claims related to the COVID-19 crisis, the first line of defense of insurers may be the bacteria/viral exclusion contained within your policy. Insurers may attempt to rely on such an exclusion to deny your claim.
Another line of defense of insurers may be a requirement that the interruption of operations be caused by direct physical loss of or damage to property at the insured premises. Coverage generally is precluded where there exists detrimental impact unaccompanied by a demonstrable physical alteration to the insured property such as when loss is a result of a viral outbreak. However, there is authority which supports a contrary result finding that where a facility is rendered unfit for occupancy, a physical loss has occurred. In addition, there is authority which has held that property can be physically damaged when it loses its essential functionality.
A potential avenue for recovery exists where the policy includes a civil authority clause. A civil authority clause is an insurance provision that outlines whether or not lost income will be reimbursed when a government entity denies access to covered property. Again, under this clause, disputes arise as to whether physical harm to the property is a prerequisite to coverage. Under the current crisis, the vast majority of businesses did not close because of the direct and verified presence of coronavirus at their insured property. Rather, these businesses closed because of governmental directives intended to stop the spread of the virus.
Currently pending before the Pennsylvania legislature is S.B. 1114, titled the COVID-19 Insurance Relief Act, which aims to provide assistance to policyholders seeking coverage under their business interruption insurance policies. This legislation attempts to provide clarity on a number of the most often disputed coverage issues. For example, S.B. 1114 would provide a definition of “property damage” to mean, in the context of a commercial establishment or other area of business activity, the presence of a person positively identified as infected with COVID-19 within the property or within the municipality where the property is located, or the presence of COVID-19 having otherwise been detected in the Commonwealth of Pennsylvania. However, the bill, if passed, may present serious constitutional issues related to the legislature’s ability to modify existing insurance contracts that could lead to quick defeat in the courts.
Coronavirus pandemic-related business interruption claims raise significant and complex legal issues. These claims must be handled on their own merits, and coverage determination is always predicated on the specific language of an insured’s policy and unique facts and circumstances underlying the insured’s claim.
If you have any questions concerning coverage for coronavirus-related business interruption claims, or potential litigation claims, or to obtain an update on the status of S.B. 1114, please do not hesitate to contact Edward J. Greene, Jane Richardson or Michael T. Shiring at (610) 458-4400.