By: Susan R. Snowden
Owners of “non-essential” business enterprises have the stress of social distancing AND the worry of saving the business during the pandemic. A loss of income that is directly related to business closures, a break or delay in the supply chain, and/or the effects of social distancing may already appear in businesses’ financials. Now is the time to be proactive and review policies of insurance to determine whether coverage exists for these losses.
Most Commercial General Liability Policies of Insurance contain a Business Interruption provision, which is coverage that is usually, but not always, added to a property or general liability policy. The purpose of the provision is to protect the insured for loss of business income that has occurred as a result of the direct loss, damage, or destruction to property from a covered event.
What to look for in the policy:
Review the insurance policy’s Declaration Page for a specific endorsement entitled “Business Interruption.” The clause usually looks similar to this:
We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.
Next, review the circumstances under which the coverage would apply. The typical “triggering” events are:
- Damage to your physical property location, this is referred to as business interruption;
- Damage to a customer or supplier, this is referred to as contingent business interruption; and/or
- Government action, such as evacuation orders.
An initial issue with COVID-19 business interruption claims is whether there has been physical damage to the business. Within the past week, insureds filed two suits that allege that coverage does exist under the business interruption within a CGL policy. The insurance industry has begun to take the position that there is no coverage for this loss caused by COVID19. The most “famous” plaintiff in a case filed recently is the world-renowned chef and restauranteur Thomas Keller, owner of the famous restaurants French Laundry and Bouchon. Keller closed his restaurants and sent home over 300 employees when the health department issued a closure for non-essential businesses. Keller’s insurance policy provides that the “business interruption” provision covers losses caused when a business is closed by government orders because of a “loss of property.” He is seeking a declaration by the court that he has coverage for his losses under the “civil authority” provision of his “all risk” policy. Keller’s policy does not have an exclusion for losses caused by viruses.
Other policyholders are claiming that the coronavirus contaminates surfaces in their properties, causing property damage that should trigger coverage. New York Mayor, Bill DeBlasio, and New Orleans Mayor, LaToya Cantrell, have both included language in their civil authority shutdown orders stating that the virus is causing property damage. Whether this language will assist in triggering coverage is yet to be seen.
What you can do:
Document business losses carefully and start now. Keep a diary of supplier delays and other impacts upon daily business. Preserve all records, save phone messages, texts and emails. These types of claims are decided upon a case by case basis. Every business is different. As the courts issue rulings in high profile claims that have been filed, what is now a very gray area will begin to clear up. It is too early in this unstable business climate to accept an early answer to the question of coverage. The future of your business may depend upon perseverance.