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Business Interruption Insurance Claims

Business Interruption (“BI”) coverage typically covers short term financial loss arising from an interruption to business operations as a result of damage to the business premises or equipment.  The coverage may extend to lost revenues, rent and/or utilities, among other things.  A contingent business interruption provision generally provides coverage for a loss of income or profits causes by issues related to suppliers, vendors, and other major business partners.  An extended business income provision extends loss coverage beyond the date that the insurer expects the business to return to full operations.

Because of the pandemic, insurance companies are now in an impossible bind: Pay one virus-related claim and be forced to pay them all, or don’t pay any of the claims.  As a result, insurance companies are uniformly denying COVID-19-related insurance claims that perhaps should be covered by the insured’s policy.  The courts are now being asked to make determinations regarding the interpretation of the insurance policies for BI claims associated with COVID-19 losses.

There are many issues before the courts, but the biggest questions center around whether an insurance policy contains an explicit virus exclusion, whether the policy requires direct physical loss of or damage to property, what the presence or absence of these provisions mean for COVID-19 coverage, and the interpretation of these provisions as they relate to COVID-19.

A. Direct Physical Loss

The insurance companies are regularly denying coverage for COVID-19 claiming that there must be a “direct physical loss” (i.e., property damage) in order to trigger coverage and that COVID-19 not such a loss.  The counter to this argument is that the possibility of damage caused by the presence of microscopic organisms is evidence of a “direct physical loss.”

B. Virus Exclusion

Another hurdle facing business owners is that following the outbreak of SARS (another type of coronavirus) in the early 2000s, many insurance companies began adding an exclusion for loss due to viral infections into their business interruption policies.  In 2006, the Insurance Service Office (“ISO”) issued a standard insurance form titled “Exclusion for Loss Due to Virus or Bacteria.”  The exclusion bars coverage for loss or damage “caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”

Importantly, however, not every policy includes this virus inclusion.  Further, if an insurer has failed to incorporate this form exclusion into their policy, it is arguable that the insurer intended to cover losses due to viruses.

C. Civil Authority

Many policies contain a “civil authority” provision.  This provision can be triggered when a state, local or federal government prohibits access to a business’ property due to direct physical loss of or damage to property other than at the insured’s premises.  As it relates to the COVID-19 pandemic, insureds argue that coverage under the civil authority provisions has been triggered due to the Governor’s “stay at home” order, which has prevented access to business properties.  The insurance companies are countering this argument by claiming, once again, that there is no coverage unless there is evidence of a “direct physical loss.” (Attorneys from have been helping many with these very issues.)

If you have you been affected by COVID-19.  Contact us today at Karp Steiger.  Personal Injury lawyers and Workers’ Compensation Attorneys.

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