During these difficult times, I have been bombarded with COVID-19 information. Whether it be from the news, blogs, emails…I’ve even received news from places that I had no idea had my email address. It is A LOT of information to process.
But when it comes to what I do for a living – helping people get the proper coverage from their insurance – I have also be approached more times than I can count to review policies and see what the best road to recovery is.
As part of this, Scott Rybny (a defense attorney whom I work against on a regular basis) asked if I would join him for a podcast to break down issues with COVID-19 and business interruption insurance so that anyone can understand it. I thought this was a great idea, so I said of course. The below podcast breaks down some basic concepts of the policies at issue so that any business owner can get a basic idea of what the arguments are from both sides. You do not need to be a lawyer to understand our conversation, and that was the goal.
So let me break down some of the overarching points in the podcast just in case you don’t have time to listen.
1. Trigger to Coverage May Not Need to Be Physical
Everyone seems to be focusing on whether or not the virus constitutes “direct physical loss”. What seems to be missing is that a number of these policies, but not all, say “direct physical loss or damage” That one little term changes things. First, it means that loss and damage are different. Second, the policy isn’t clear in whether the trigger can be “direct physical loss or direct physical damage”, or in the alternative “direct physical loss” or “damage”. I know that seems like semantics, and it is, but that is what reviewing a contract means. Looking at every word for the meaning.
This ambiguity must be read in favor of the insured, meaning that all you need to trigger coverage is some form of damage and it doesn’t need to be physical. So if a business sustained loss of income, that should be enough to trigger coverage. This concept that coverage need not be physical is further evidenced by the language of the policy. Most of these business policies indicate that they cover loss to items that cannot sustain physical loss, like accounts receivable. If there are items that can be covered but can’t be physically damaged, then it stands to reason that you don’t need physical damage for coverage.
Finally, the law backs up this concept as well. In our research, we have found cases where courts have found coverage simply because items were shipped out late with an old expiration date. That printing of the old expiration date was determined to be damage enough to trigger coverage and that it didn’t need to be a “physical” change to the item.
The take away: Don’t just focus on physical loss, focus on whether the business sustained damage
2. Civil Authority Coverage Should Provide Coverage
Most Civil Authority Coverages indicate that if you are shut down by a civil authority (local, state, or federal government for example) because another property suffered a covered cause of loss, then you are covered for the loss sustained as a result of the shutdown. Now, I don’t think anyone will be arguing that this shutdown was not done by a civil authority. So the question becomes, did the shutdown occur because of a covered cause of loss?
Again, we get back to the argument that all you need is damage in some cases, not physical loss. In addition, now we can start focusing on whether or not the loss is physical or not. This will be hotly contested for sure, but it is important to note, the court has already determined that things like fumes constitute physical loss. Beyond that, carriers have determined that things that can simply be cleaned, and aren’t physically altered, are damaged as well (think of a smoke loss).
The other focus is going to be on proximity to the loss location. Many Civil Authority provisions require some distance relationship to the triggering property. For many cases in places like Philadelphia, it will be easy to claim that the actual virus was within X miles. But in the burbs, it may be harder so the arguments will become more nuanced.
The take away: Civil Authority should provide coverage if the right claim is presented
3. Virus Exclusions
This is another big area that is being talked about when it comes to COVID-19 and business interruption insurance. Most of the arguments focus on whether or not the virus “directly or indirectly” caused the loss. But what is being missed is whether the Virus Exclusions can even apply to things like Civil Authority which is an “additional coverage” under the policy. A review of this issue with the law seems to suggest that when there is a conflict between an exclusion and an additional coverage, that creates an ambiguity and as a result, coverage.
This argument is very much based on caselaw and as a result, the average adjuster for a carrier will likely not change their position on it, but it will be important to point this out to adjusters through the process so that later, it can be argued that they were on notice of the conflict but did not reconcile the issue appropriately.
As for the issue of effect, it is important to note that if the argument is made that the virus did not directly or indirectly cause the loss, then you cannot argue the virus is the trigger for coverage at the other property that triggered civil authority. So in this situation, the path to coverage would be 1) other property suffered “damage” as discussed above 2) that “damage” is a covered cause of loss to trigger civil authority coverage; 3) your loss of income is covered. This will be the most difficult avenue to recovery and will be largely dependent on the courts.
Take away: The virus exclusion likely does not apply to the additional coverage of Civil Authority
This is just an overview of the issues with COVID-19 and business interruption insurance. If you have had a business that was affected by the shutdown, give me a call right away. We can help.