Well, the first step is to see if any of your insurance policies provide for business interruption or business disruption coverage. It is certainly possible that you have a separate policy for business interruption, but not infrequently, this may be covered under an overall comprehensive coverage policy or as part of a property/casualty policy. It could be covered as part of a rider to one of these policies, or in rare situations, you might have a specific policy for an infectious outbreak or pandemic event (a so-called bespoke policy).
If you have an insurance broker, ask your broker for assistance in reviewing your policies to see if you have business interruption or disruption coverage and the answers to the questions below. If you don’t have a broker, speak with your business’ attorney.
Step 1. Determine what kind of coverage you have. For purposes of this blog post, I am going to assume the most common situation, that if you have coverage, it is part of a property/casualty insurance policy. We are going to look at the potential for at least four ways that you might be able to claim coverage. The first is business interruption. The problem is that if this is part of a property/casualty policy, the coverage is likely tailored to damage to the policyholder’s own property. This can present a couple of problems. First, does coronavirus qualify as damage to the property? Second, if the business is renting the property and does not have its own policy, the business may not be covered under the landlord’s policy.
The second potential source of coverage is contingent business interruption coverage. That will ordinarily mean interruption to a supplier’s business that then limited your own, but could also extend to a loss of customers. As an example, one could imagine that a food processor might have had to cut down production because they could not get access to face masks and gloves that were being redirected to health care providers and this in turn might have reduced deliveries to a restaurant or store that then lost sales volume due to decreased shipments of certain items they depend on. With respect to a loss of customers, one could imagine that a business that provides event planning services that suffers losses due to the prohibitions on gatherings of more than ten people.
A third source of coverage, which would be very important in the case that your business could have gone on just fine, did not have property damage and your supply chain remain intact, but you had to close or reduce your business because of the governor’s order and this provision in a policy is often referred to as an order of civil authority. An interesting declaratory action case has been filed – Cajun Conti, LLC et al. v. Certain Underwriters at Lloyd’s, London et al. in the Civil District Court for the Parish of Orleans, State of Louisiana- in which a restaurant is seeking the court’s ruling that closure pursuant to the Governor’s order will trigger coverage under the company’s business interruption insurance. A decision will not be binding on courts in other jurisdictions, but it may nevertheless be instructive, and perhaps even persuasive.
Finally, even if your business remained open, did not suffer any “property damage,” was able to continue getting the supplies it needed, and was not shuttered by an order of civil authority, it might still be covered if this business is one that depends on patrons from a nearby business that was shuttered (a so-called leader property) and there is a provision in the policy that may be referred to as Loss of Attraction, or something similar. An example might be a private bookstore that is located adjacent to a college or university and typically sells books and college-themed apparel to the students of the college or university that is now closed for the remainder of the school year.
If your policies don’t cover any of these, then you are likely out of luck, but be sure to consult with your insurance broker or attorney just to make sure.
Step 2. If you do have one or more of these coverages, then determine what is the event that triggers coverage. Most often, if the business interruption coverage is under your property/casualty policy, the critical question will be whether you incurred property damage. If you are fortunate that you have a separate business interruption policy or bespoke policy that covers an infectious outbreak or pandemic, then often the triggering event will be the date that the infection became reportable to authorities. In the U.S., that was January 8, 2020. If you have coverage for an order of civil authority and your business operates in Idaho, that date would be March 25, 2020.
But, in most cases, the question is was there property damage. The key question will be whether the mere presence of coronavirus constitutes property damage. While coronavirus does not cause damage in the typical sense, the virus may be present in the air handling system or on surfaces in the business. There are legal cases where the courts have decided that the presence of a harmful substance does constitute property damage. This may be an easier case to make if you have had workers documented to have become infected. Essential businesses, where there is an ongoing threat of the virus being present in the business may be in the best position to prevail on this point. (But even if the business can prevail on this point, the bigger hurdle is the next step).
Step 3. Check for exclusions. This is not the first epidemic or pandemic. Insurance companies have been aware of the likelihood of another pandemic for some time, and many modified their policies many years ago to exclude pandemics and other public health threats. Read your policy carefully. There may very well be an exclusion.
Step 4. If you do have coverage, then you need to look at the policy to determine what is exactly covered. For example, coverage may be limited to certain types of costs such as the cost to sanitize your business or with opening up an alternative location for your business and might not cover your lost revenues or profits. Additionally, even if you have broad coverage, the amount you can recover may be subject to a cap.
So, this all is very complicated. Be sure to read your policy because every policy is different and every business’ impact from this pandemic may be different. Reach out to your insurance broker or business attorney for help to understand if you are covered, what you are covered for and deadlines by which you need to submit your claim.
This is also a time to review what your coverage is and if you want to change it for the future. Keep in mind the factors above and discuss this with your insurance broker. Unfortunately, the occurrence of this pandemic is not likely to result in insurance coverage that is more expansive or lower cost, but to the extent that any carriers will still offer coverage for these events, you may want to consider whether it is worth it to you to pay more to get at least some coverage for a future event.
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