3-24-20 Client Alert - COVID-19 Related Business Interruptions

COVID-19 Related Business Interruptions

As the novel coronavirus (COVID-19) continues to impact our communities, many businesses and organizations have suffered, and continue to suffer, significant financial losses, including those resulting from business interruption.

Businesses may be able to mitigate these losses through coverage available under their business interruption insurance. This insurance coverage is intended to protect businesses against income losses resulting from disruptions in operations. Contingent business interruption coverage may also provide coverage if the financial losses result from disruptions to the business's customers or suppliers. The scope of coverage which determines whether a business is entitled to insurance coverage for business interruption losses resulting from COVID-19 will depend upon the specific terms of the insurance policy.

In many policies, absent specific exclusions, the availability of business interruption coverage is triggered by a "direct physical loss of or damage to" insured property. Since the COVID-19 outbreak, many insurance carriers have begun issuing blanket notices, indicating, that despite the absence of applicable exclusions, there is no coverage available for business interruption losses resulting from COVID-19, presumably based on the lack of direct physical loss. In many cases, the losses may arise not from the presence of COVID-19 at the business premises but rather because of government mandated business closings or operational restrictions. This issue may not be as clear cut as the insurance carriers are representing. In many jurisdictions it is not clear when a "physical loss" occurs due to infectious diseases or contamination. The likely interpretation may depend upon the particular facts of each case and the exact language of the policy. In fact, the first known COVID-19 related business interruption coverage lawsuit was filed last week by a restaurant in New Orleans seeking coverage resulting from a mandated shut-down.

Commercial property owners should also consider their commercial insurance policies which may provide "civil authority" coverage. This type of coverage generally insures against business income losses due to government restricted access to premises to limit active transmission of an infectious disease that has been identified in proximity to the property. To be available, civil authority coverage may not (but sometime does) require "physical loss" resulting from a covered cause of loss to be on the policyholder’s commercial property.

The solution for businesses that have experienced COVID-19 business income related losses may not come from the courts, but rather as a result of legislative efforts. A bipartisan group of 18 Congressional leaders recently sent a letter to leading insurance industry trade organizations, urging insurers to provide business interruption coverage under existing commercial property policies for companies’ losses due to closures tied to COVID-19. There is also a bill that is currently being discussed in the New Jersey General Assembly that would retroactively expand business interruption insurance to include losses attributed to COVID-19 for policies governed by New Jersey law.

Woods Oviatt attorneys are available to assist in the review of insurance policies to both assess the possibility of any available insurance coverage and where applicable help timely file and pursue insurance claims.

For more information regarding Coronovirus (COVID-19) or to access all of our client alerts go to:

https://www.woodsoviattgilman.com/practices/covid-19-multidisciplinary-crisis-group

Please contact your Woods Oviatt attorney or the following attorneys regarding COVID-19 related issues:

COVID-19 Multidisciplinary Crisis Group Co-Leaders