Recently this law firm published a legal briefing summarizing potential issues with business interruption insurance stemming from COVID-19 shutdowns. Multiple businesses are struggling with the evaluation of what constitutes a valid claim against the backdrop of the worldwide pandemic. In response to the expected rise in claims, lawmakers have raised salient policy issues. For example, legislators in multiple states (NY, NJ, OH, MA, LA, SC) have proposed laws that will retroactively expand business interruption insurance to include COVID-19 related claims, regardless if the policies specifically exclude those claims. Proposed legislation by New York lawmakers (A-10226), includes language specifically addressing the question of whether a virus exclusion clause is valid:
“Any clause or provision of a policy of insurance insuring against loss or damage to property, which includes, but is not limited to, the loss of use and occupancy and business interruption, which allows the insurer to deny coverage based on a virus, bacterium, or other microorganism that causes disease, illness, or physical distress or that is capable of causing disease illness, or physical distress shall be null and void; provided, however, the remaining clauses and provisions of the contract shall remain in effect for the duration of the contract term.”
Government officials have weighed in as well. Earlier this month President Donald Trump suggested that insurers should pay some business interruption claims related to the fallout from the COVID-19 pandemic. Conversely, a group of senators wrote a letter to the president on behalf of insurance providers arguing against policy interpretations allowing relief to insureds for losses not covered under the existing policy language, such as losses related to viruses such as COVID-19[1].
Determining what constitutes a successful claim begins with a thorough analysis of the specific wording and provisions of the business insurance policy. Policy holders should contact their brokers/insurance providers to obtain an explanation of related coverage of the policies they may hold. Factors that policy holders may need to evaluate prior to making the decision to file a claim under their business interruption policy:
· Is the policy a business interruption policy or a contingent business interruption policy?
Contingent business interruption provides the insured with coverage for loss to the property of suppliers or consumers of its products or services.
· Does the policy include a clause excluding any claims for damages related to the spread of a virus?
· Can the COVID-19 virus cause the direct physical loss that most insurance policies require to file a claim?
· Are the policy terms written to allow filings of business interruption claims stemming from government shutdowns?
· Will the policy cover any business disruptions stemming from a breakdown of the business supply chain?
Regardless of the results of the evaluation, the most successful claims will be persuasive and well-documented. Generally, insurance companies prefer that policy holders will not file a claim for interruptions due to COVID-19. Insureds should file claims if they believe (but are not certain) there is a valid claim, as many insurance companies require adequate notice to file a claim for relief. Additionally, showing proof of loss is usually required under these policies regardless of whether the claim is ultimately is denied or accepted. If a lawsuit is commenced, filing a claim will serve as a rebuttal against any argument by the insurance carrier that adequate notice was not received causing a potential rejection of a legitimate claim due to a lack of the required proof of loss.
The true effects of COVID-19 on the insurance industry— the insurers or insured—is not fully quantified. It is expected that pandemic related disruptions are expected to increase and businesses claiming losses via business interruption policies will follow suit. The conflict between the interpretation of the policy language will lead to an increase in lawsuits. It is reasonable to predict that courts in different states will produce different results based on the facts and policy language in dispute and established precedent. A company’s best tool to successfully navigate this environment is knowledge of current regulations and the applicable insurance policies they may have.
Consulting with an attorney now could save considerable time, resources, and money in the future and preserve your legal rights. Our firm has extensive experience reviewing, arbitrating, and litigating insurance agreements. If you have any questions about filing a claim for coverage or any denials you may have received, please contact any member of the Firm at 585-730-4773. Please note that any embedded links to other documents may expire in the future.
This Legal Briefing is intended for general informational and educational purposes only and should not be considered legal advice or counsel. The substance of this Legal Briefing is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2020 Law Offices of Pullano & Farrow PLLC
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