For more information about this topic, please contact the following members of the Nelson Mullins Business Interruption Insurance Coverage Working Group: Larry Kristinik, Christopher J. Blake, William S. Brown, Robert Massie, Blake T. Williams, Robert C. Calamari, and Leslie Lane Mize.
No pandemic has impacted the global and US economies on such a scale in so short a period of time as COVID-19. The effects of the virus and business disruptions are being felt across all industry sectors. In the face of these economic challenges, companies will be identifying ways to recover or minimize their business losses, and many may be considering whether business interruption insurance coverage is applicable. The Nelson Mullins Business Interruption Insurance Coverage Working Group offers the following practical considerations when assessing insurance coverage for business interruption losses resulting from COVID-19.
- Inventory Your Policies: The question of whether business interruption insurance may be available is very dependent on the specific policy language (which differs from insurer to insurer) and is also dependent on the law of each state. If you believe you have a potential business interruption claim, your risk manager should gather all appropriate insurance policies and endorsements. If you believe anything is missing, you should contact your insurance broker to obtain complete copies.
- Provide Notice to Insurers: If you do not provide notice of a claim for the loss of business income, there will be no chance of an insurance claim succeeding. After you inventory your coverage, if you and your counsel or broker believe there is any chance at recovery, err on the side of providing notice. Timely notice is required by policies, and late notice of a claim is a basis for denial by insurance companies.
- Physical Loss or Damage Requirement: For “all risk,” hazard, and peril property insurance policies, business interruption coverage typically requires a connection between physical loss or damage to insured property and the loss of income (e.g., a fire at a manufacturing facility that shuts down the facility). If you believe your business has suffered some actual physical damage from contamination from COVID-19, you should take action to document such damage as soon as possible. For example, if you have employees who have tested positive for COVID-19, you should contact a qualified environmental testing lab or other testing vendor to record and document the presence of the virus on surfaces and equipment prior to having those surfaces and equipment cleaned and sanitized. Your legal counsel can assess whether the law of the state where insured property is located would recognize contamination by virus as physical loss or damage to property.
- Document Financial Losses: The loss of business income must arise from the physical damage to property. If you believe you may have a claim, take steps to ensure sufficient records are maintained to document the loss of income and to demonstrate such loss is related to the contamination of the property. The policyholder bears the burden of demonstrating losses.
- Period of Restoration: The time period for which business income losses can be recovered will likely be limited. There may be an initial waiting period (i.e., 60 days) but then the time period for which losses can be recovered will typically end once reasonable efforts can be taken to restore the property. This amount of time can vary greatly depending on the circumstances (i.e., property is extensive or difficult to reach; lack of availability of qualified personnel to perform restoration efforts).
- Document Cost of Remediation: Sometimes the cost to remediate property damage can be recovered. So keep track of the expenses incurred when restoring, disinfecting and cleaning up coronavirus damage.
- Deductibles: For each “occurrence,” the insurer may require payment of a deductible. Whether there has been one occurrence or multiple occurrences depends greatly on the specific circumstances and the law of each state.
- Virus Exclusions: Following earlier epidemics/pandemics including H1N1 and SARS, many insurers added exclusions to business interruption coverage “due to virus or bacteria.” A detailed review of your policies should be conducted to determine whether any such exclusion was included in your policies and the scope of what is excluded.
- Contingent Business Interruption Coverage: Some policies provide coverage for “contingent” business interruption, when your business is interrupted by physical damage or loss suffered by one of your customers or vendors. If you suspect this has occurred in connection with one of your customers or vendors, you should advise them to document any physical loss or damage in the same way as if it was suffered by your business.
- Civil Authority Coverage: Some insurance policies may include provisions that cover losses from civil-authority orders. In order for these provisions to apply to COVID-19, there needs to be a civil-authority order that specifically orders the shutting down of a business related to specific property damage. General shut down orders intended to stem the spread of the virus are not likely to trigger coverage.
- Additional Coverages Not Linked to Physical Damage: Although typical property insurance requires physical loss or damage to property to trigger business interruption coverage, some insurance policies include expanded coverage for non-physical types of damage. Some of these include: (a) coverage for cancellations specifically relating to epidemics and pandemics; (b) crisis management coverage; (c) coverage for interruption by communicable disease; and (d) event cancellation coverage. If you believe you have purchased any of these additional coverages, you should carefully review your policies and endorsements to assess the available coverage.
For additional information on COVID-19 related issues, please visit the Nelson Mullins COVID-19 resource page or contact a Nelson Mullins attorney.