Businesses big and small are feeling the financial impact of COVID-19 and government orders that required them to cease or severely curtail their business operations. Some business owners may be asking “what about all those insurance policies I’ve been paying premiums on for years? Shouldn’t they cover some of this?” The answer is: it all depends.
Financial losses related to COVID-19, including lost profits, damage to inventory, and damage to premises, may fall under one or more insurance policies. “Business Interruption” insurance, which can be a standalone policy or a coverage under a business’s general business protection policy, is marketed as a way for businesses to protect themselves from business losses related to unforeseen occurrences. While on the surface this coverage seems tailormade for the current situation, there are open questions about whether the coverage will apply. Initial chatter had been that coverage was excluded, causing many business owners to never explore the issue further. However, in reality the question still remains about whether there is insurance coverage for COVID-19 related losses and businesses should not give up too quickly on this possibility. Businesses should review all insurance policies thoroughly, or have them reviewed by an attorney, and should provide notice to their insurance carriers of their losses and request payment where it appears there may be coverage.
BUSINESS INTERRUPTION INSURANCE
Many businesses have some form of business interruption insurance coverage, meant to cover losses suffered by a business due to certain triggering events beyond a business’ control. Two common triggers of business interruption coverage applicable to COVID-19 are (1) physical damage, and (2) act of civil authority (government).
Physical Damage: Most business interruption policies (but not all and businesses should read their policies closely) require physical damage to trigger coverage- such as damage from severe weather. In such a scenario, physical damage would typically be covered by property damage while lost revenue due to closure for repairs would be covered by business interruption insurance. Physical damage also can include contamination though, which could bring into play infection-causing agents such as viruses like COVID-19. Most business interruption policies require physical damage to trigger coverage, and the initial thinking among industry leaders was that the absence of physical damage due to COVID-19 may prevent coverage for COVID-related losses under these policies. While it remains to be seen how reliably a business can establish that COVID-19 was actually on their premises, nor is it clear that that determination alone will be enough to trigger coverage, more recent events, including class action lawsuits and wider recognition that policy language differs greatly on this topic, have lead some to retreat from the assumption that business interruption coverage will not apply to COVID-19-related losses, including those due to government mandated closures. Business owners should review their policies carefully and provide their carrier with notice of losses if on the surface it appears there may be coverage.
Civil Authority: Another trigger commonly found in business interruption policies is losses due to order of a “civil authority”- i.e. order of a local, state or federal agency. On the surface, Wisconsin’s “Safer at Home” order or county-level equivalents appear to fit this definition. However, some policies still require physical damage in addition to a government order. Again, policy language varies widely in how this coverage is triggered and the extent of coverage, and there are open questions about how courts will interpret the requirements for coverage. Businesses should consider filing claims with their insurer if the conditions for coverage under one or more of their policies appear to be present.
VIRUSES AND BACTERIA
To underscore how important it is to review your policies instead of relying on generalized conclusions, consider how insurance treats viruses and bacteria. Many policies specifically exclude viruses and bacteria from coverage, whether it be from property damage coverage, business interruption coverage or even premises liability coverage. However, some policies specifically cover damage related to viruses and bacteria through an endorsement, sometimes for an additional charge. Yet other policies may be silent on the matter, leaving confusion (generally if something is within the general definition of covered risks and is not specifically excluded, it should be covered, but caselaw can further limit that coverage as well). In reviewing policies, or having them reviewed by a knowledgeable attorney, business should pay attention to mention of viruses, bacteria, infections, epidemics and similar terms.
Many businesses have been closed for over 2 months. If periodic monitoring and maintenance has been lacking, owners may return to discover damage, such as water damage from a leak. This would typically fall under a property insurance policy, and although the cause of your absence may have been COVID-19-related, a claim related to such damage is unlikely to be impacted by the presence of the virus.
WILL THERE BE COVERAGE?
This depends on what insurance a business purchased, the language of the specific policies, the facts of a business’ specific circumstances, how courts have interpreted such policy language (and how they will do so in light of COVID-19), and discussions with your insurance companies. The initial assumption of most insurance experts was that there probably would not be coverage under business interruption or other insurance policies for businesses losses due to COVID-19 due to certain exceptions, such as the physical damage and civil authority exceptions noted above. Insurance carriers have been quick to amplify that conclusion. However, multiple lawsuits have been filed, including at least one class- action lawsuit in Wisconsin, challenging denial of coverage determinations by insurers related to COVID-19. It remains to be seen whether these challenges will be successful, but there are compelling arguments for why businesses that pay thousands of dollars each year to be covered for unexpected losses should be able to avail themselves of that coverage in an unprecedented world emergency.
WHAT SHOULD BUSINESSES DO?
How businesses should approach possible insurance coverage for losses related to COVID-19 will depend primarily on what insurance they have and the language of those policies. However, there are some common steps that every business should take to determine what they may have at their disposal and how to proceed:
- Make a list of all insurance your business has purchased and locate or obtain complete copies (including all endorsements, exclusions and riders) of each policy. If you do not have complete copies of your current policies, request them from your agent or broker.
- Review each policy carefully and completely, or have them reviewed by a knowledgeable attorney. Pay special attention to mention of viruses or bacteria, requirements of physical damage, reference to acts of government or civil authority, any exclusions or endorsements, and how to properly provide notice of a loss. Your attorney can help you parse the often dense language of these policies.
- While asking your insurance agent to help or provide guidance is a good idea, be careful about relying too heavily on their recommendations or interpretations as agents may be basing their thoughts on information from the carriers. You should enlist and expect your agent to help you communicate with your carrier though, and a good agent will advocate on your behalf.
- If there is any good faith reason to believe there may be coverage under one or more policies, give written notice of a claim to the insurance company. Failure to provide timely notice can result in waiver of a claim, and providing notice is key both to getting the process started and preserving your rights. Pay attention to language in the policies about how to provide notice and comply completely.
- Keep thorough records of your losses, including what caused them. This includes things like a state order that required your business to close or curtail operations, reduction in capacity due to compliance with OSHA and CDC recommended safety measures (e.g. social distancing), and presence of COVID-19 in your facility which warranted other measures (such as closure, cleaning, etc.). Prepare financial records demonstrating lost revenue and additional costs (such as increased cleaning) due to COVID-19 compared to pre-pandemic business, including accounting for seasonality of business where appropriate.
A few other things to keep in mind:
- Coverage may be limited by time period or dollar value.
- There may be challenges in proving that your losses are directly attributable to COVID-19. If coverage is based on government ordered closure, this will be less of a problem, but if it’s based on COVID-19 on premises, it remains to be seen how practical it will be to demonstrate (whether through multiple employees with positive test results or other factors).
- There is still a duty to minimize losses. Insurers may question why you didn’t shift to alternative ways of doing business (e.g. working remotely, online sales, etc.) or do so faster. Insurers expect businesses to do everything to control damage they would do if there was no insurance at all.
- Businesses will not stop feeling losses related to COVID-19 when they re-open. While it remains to be seen whether there will be a drop in customers due to general societal fear of returning to public interaction, you should continue to document the effects of COVID-19 on your business as it may be relevant to insurance, government assistance or for other purposes.
FUTURE INSURANCE NEEDS
Epidemic and pandemic-related insurance is already becoming a hot commodity for businesses and will only continue to grow. Depending on the outcome of court cases that will determine the bounds of coverage provided by existing insurance products, this may become an essential form of insurance for businesses in the future. However, businesses should carefully examine what is and is not covered by such policies before purchasing. One of the arguments being made by insurance companies regarding why existing policies should not cover business losses related to COVID-19 is that it would be too financially harmful to those insurers. If that’s the case, one has to imagine that disease or epidemic-specific coverage will be expensive and may come with multiple strings attached. Always make sure you ask lots of questions and fully understand what is and is not covered before purchasing a policy.
- Find and read your policies thoroughly or have your attorney do it for you.
- If there’s any reason to think you have a claim, provide written notice to each applicable insurer. Work with your agent, but don’t rely on them as they may not have all the answers.
- There are a lot of unknowns regarding COVID-19 related insurance coverage, but failing to file a claim where there could be coverage is a guaranteed way to ensure no insurance help for your losses.
This article was co-authored by Attorney John Rather and Attorney Eric Klemm. Attorney John Rather is a graduate of Marquette University Law School and practices business, employment and health care law as part of Neider & Boucher’s business team. John is co-chair of the firm’s COVID-19 response team. Attorney Eric Klemm is a graduate of the University of Wisconsin’s School of Law and practices as part of Neider & Boucher, S.C.’s business team and is a member of the firm’s COVID-19 response team.
The guidance provided above is general in nature and readers are encouraged to reach out to Neider & Boucher, S.C., or to their own legal counsel to determine the applicability of these issues to their own personal and/or business needs.