With the CDC recommending the cessation of elective procedures and several state and local governments ordering some providers to stop providing various services or performing procedures, many health care providers are facing massive drops in their revenue. In the pharmaceutical space, companies have already had to reduce lines of production as a result of COVID-19 closures and limitations. The question most business are asking as a result is, "Does our insurance provide coverage for these losses?"
Property Insurance Coverage
If your business has or will suffer losses because of COVID-19, or if you have had to incur increased expenses to deal with COVID-19, the first place to look for coverage is your property insurance policy. Property insurance policies not only provide coverage for physical losses to insured property, but they also provide coverage for losses due to business interruption resulting from covered causes. The initial question is whether the insured's losses are the result of a covered cause, such that they trigger the policy's coverage.
Most property insurance policies require "direct physical loss or damage" to the insured property by covered causes to trigger coverage. The presence of the virus on the insured property may suffice to trigger coverage, because a court may find the presence of the disease damages the property—it is a contaminant that makes the property unfit for use until it is remediated. Policyholders will undoubtedly make this argument, because of the extent of losses they may suffer. When a business determines that customers or employees who have been on company premises have tested positive for COVID-19 the financial consequences can be significant. From increased costs to test products and disinfect facilities to complete closure of a facility and the lost revenue that follows—these losses can quickly add up.
But even where the virus has not been found present on the insured premises, coverage may still be triggered. Some courts have held that lack of access to the insured premises effectively renders the property worthless and therefore the property has suffered "direct physical loss." In light of government orders closing businesses or prohibiting certain activities, the argument has and will be made that the businesses have been "damaged" because they are not useable. It should be noted that businesses that proactively close their doors will likely not have coverage under their policies for resulting losses; the closure has to be the result of events outside the insured's control.
Triggering coverage is just the first hurdle. Many policies have exclusions for loss resulting from viruses, and others have exclusions for losses resulting from the disease or illness of any person. Even where policies contain such exclusions, the breadth and applicability of these exclusions depends on the specific language of your policy, as well as the particular state law that may apply. These exclusions have never been interpreted or applied by courts in the context of COVID-19. Courts evaluating these claims may find the exclusions are ambiguous and find the terms in them undefined. They may also find a lack of causation between the exclusion and the loss or they may find the exclusions do not apply to every coverage provided in the policy. Perhaps the exclusion more clearly applies to the property damage coverage, but not to the business interruption coverage.
As anticipated, numerous lawsuits have already been filed seeking coverage for losses caused by the novel coronavirus. Restaurants and bars have filed suits in Louisiana, California, Illinois, Florida, and Texas seeking to proactively force their insurance carriers to pay for the losses they have suffered as a result of government-ordered closures due to COVID-19. Operators of casinos in Oklahoma have filed similar suits. Multiple state legislatures have also introduced bills seeking to force insurance companies to pay COVID-19 related business losses, even where the policies may contain exclusions for losses due to viruses.
Even if the availability of coverage seems remote or unclear, businesses should strongly consider making a claim, because of the potential the courts will find coverage in the context of COVID-19, where they might not have before. Given the far reaching impact of the pandemic on our economy and what insureds reasonably expected their policies to cover, it is conceivable this wave of litigation may result in a more policyholder friendly interpretation of these policies. In addition, it may be useful for businesses to make a claim, as a denial from the carrier may be helpful in connection with accessing governmental stimulus or relief funds.
Steps to Take Now
It is vital that business owners understand what coverage they do and do not have for these losses, and how their decisions regarding how and when they respond to COVID-19 may impact the coverage available. The most prudent thing business owners can do right now is to take these steps:
- Get complete copies of all of your insurance policies;
- Get the actual orders issued by various civil authorities, do not rely on characterizations of them in the media;
- Have your insurance policies closely reviewed for the specific coverage provided;
- Keep track of your losses and additional expenses in preparation for making claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.