Nearly every business enterprise in America and around the world has been impacted financially as a result of the coronavirus. Many of those businesses have property insurance that includes some type of business interruption insurance coverage for which they have been dutifully paying premiums, oftentimes for years, without submitting a claim.
With the current pandemic, many will now seek reimbursement for their economic losses. I anticipate that few insurance companies will voluntarily acknowledge that the language in their policies providing business interruption coverage applies to the current coronavirus, forcing insureds to seek redress through legal avenues. The biggest question now is...
Does COVID-19 (or coronavirus) constitute “direct physical loss or damage” required to trigger business interruption coverage?
I believe the proper answer to be “YES, it does.” And in the absence of a specific exclusion should result in the recovery of the economic loss or damage incurred by commercial policyholders. Below are several of the areas that will help insureds justify their business interruption claim that results from the COVID-19 pandemic.
Policy Language
The first area we will look at is policy language and the rules concerning the interpretation of policy language for what is and should be covered. There are three specific types of triggering language that will enact your policy coverage which are:
- Plain language
- Ambiguous language
- Exclusion language
Physical Damage & Loss
This leads us to our second area, which is the physical damage component of your coverage. The triggering language or coverage in most policies is the occurrence of “direct physical loss or damage” to the covered property. Once that is established to the covered property, the time element coverages of business interruption and extra expense are then triggered by any “loss resulting from necessary interruption of business conducted by Insured, whether total or partial and caused by physical loss or damage covered herein during the term as to real and personal property.”
Generally, most claims are based on traditional physical "damage" to a property which are the result of common perils such as fire, tornado, wind, and others. Policies refer not only to “damage” but also to “loss.” If the two terms were meant to be duplicative or interchangeable, then there would be no need to have both set forth in a policy. Thus, the terms must necessarily have different intentions and meanings.
Legal Cases
We see with government orders that required the closure, in total or in part, of non-essential businesses to protect against the spreading of the pandemic caused a “physical loss” of use of their properties, with resulting business interruption loss as provided for in “all-risk” policies. There are several court cases that support this approach and make the correlation to the coronavirus as a trigger for business interruption coverage justification. One of those cases is TRAVCO Insurance Co v Ward.
These are just some of the areas of coverage and allowance that insured businesses should be looking at as they navigate the unique and challenging economic realities of the current pandemic. For a more detailed reasoning of the arguments for coverage triggered by the coronavirus pandemic, we have published an eBook entitled Coronavirus Triggering Business Interruption Coverage that you can download below. For more information on other considerations and perspectives on business coverages during the COVID-19 pandemic, visit our blog, or for a free policy review, click the contact us button below.