Is Your Pandemic or Civil Unrest Business Interruption Covered by Insurance?
Like almost every other industry, real estate has suffered some losses due to COVID-19 and social-unrest-related closures. The good news is that your business may have coverage under the business interruption (BI) provision in your property insurance policy. The bad news is that insurers are likely to put up a fight.
BI coverage usually reimburses insureds for the lost income and extra expenses they incur when their operations are disrupted because of property damage. Thus, businesses with property damage resulting from civil unrest should be able to file claims, unless your policy contains a specific exclusion.
The potential hurdle for COVID-19 claims is that the coverage typically doesn’t apply without the physical loss of, or damage to, the insured property. Your COVID-19 losses may stem instead from lost productivity, shuttered supply chains or the inability to travel to close deals.
Insurance companies have already begun to argue in court that COVID-19 closures don’t satisfy the property requirement. Courts, however, haven’t agreed on a generally accepted definition of “physical loss or damage.” For example, some have held that occurrences that render property unusable, such as contamination, are covered.
Moreover, some property insurance policies include coverage for losses incurred when a “civil authority” prohibits access to the property — think “stay-at-home” orders — even in the absence of physical loss or damage. Some policies have riders covering communicable disease without physical loss or damage, too. But your policy could have exclusions for losses caused by pathogenic organisms, viruses and disease, bacteria or illness-causing agents.
Notably, ISO (formerly known as “Insurance Services Office,” an advisory firm serving the insurance industry) has developed two new advisory endorsements providing limited coverage for certain civil authority orders specifically related to COVID-19. Such coverage may be worth exploring.
Pro-coverage legislative action
Your property policy’s specific language ultimately will determine whether BI coverage is available for your civil unrest or COVID-19 losses — which means you can expect disputes regarding the proper interpretation of the contract language. Not surprisingly, litigation over BI coverage for COVID-19 claims began this spring as the crisis heated up. State legislatures responded promptly.
Several introduced bills that would prohibit insurance companies from denying claims based on COVID-19 being a virus, regardless of whether a policy excludes losses resulting from viruses, or on the lack of physical damages. Contact your legal advisors for the latest developments in your state.
We can provide critical assistance when you need to calculate and document the amount of covered losses. Our team of professionals will build your claim from a wide variety of financial records and data, including, depending on your business type:
- Three to five years of the general ledger, bank statements and income tax returns,
- Ongoing expenses during the covered period (for example, key employee salaries, utilities and insurance),
- Disrupted expenses during the covered period (for example, non-key employee wages, raw materials and delivery),
- Historical and trending income and expense rates,
- Receipts for materials and labor for constructed assets (such as new buildings),
- Unsold inventory,
- Vacancy rates,
- Competitive advantages, and
- Pending contracts and work in progress.
We will also consider information related to market shifts and seasonal variations.
Cover your bases
Any insurance claim runs the risk of denial, but don’t let that discourage you from pursuing reasonable BI claims. Check your policy carefully to ensure compliance with proof of loss and filing deadlines and requirements. Businesses that don’t follow the rules may inadvertently forfeit coverage.