Experts are finding insurance coverage for business interruption losses related to Covid-19. Here’s what you need to know and what to do next to find out if your business is covered.

Since Gov. Evers implemented the formal Safer-at-Home order in Wisconsin, I’ve been getting calls from clients, attorneys, contractors, and other businesses asking for help. Most have questions about their insurance coverage options for pandemic-related business interruption losses and how to pay their employees. Others actually filed claims, and their insurance companies told them there wasn’t coverage.

Over the last month, our small company has been adapting, working remotely, rescheduling inspections, and attempting to close claims while insurers’ loss adjustments seem to have come to a halt. Despite these challenges, the hardest part is seeing medical professionals risk their lives to help others, families struggle, businesses shut down, and people who are lost with no way to get back on their feet without a job.

With all the theories and beliefs floating around in this new environment, I thought I’d put my research and thoughts down to give business owners a better understanding of their options if they have suffered any losses as a result of COVID-19.

Does my Policy Cover my Business Losses?

It’s a frustrating answer, but it depends. Some insurance policies provide coverage for business losses, but not all do. It’s important to read your policy and understand your coverage (even though policies are written so most can’t understand them). The purpose of this post is to debunk the rumors and give examples where there may or may not be coverage under a standard insurance policy.

It’s a Contract

Understand that an insurance policy is a legal contract of adhesion. That means the policy language was written by the insurer (or a third-party writing for the insurer), and the insured has no option to modify the contract terms. Because of this, any ambiguity, a legal term for confusing language, in the contract is construed in favor of the insured.

Policies are written either as an All-Perils policy, which covers all risks of loss that aren’t specifically excluded, or as a Named-Perils policy, which covers only those risks specifically named in the policy. There may be endorsements and/or exclusions in either type of policy. Read all endorsements and exclusions carefully: both change the policy language. Understanding what type of policy you have upfront is the best place to start.

Certain types of businesses may have yet another type of policy for their specific business, such as a farm, restaurant, landlord, hospitality, repair shop, etc.

Do I have Business Interruption Coverage?

Most Business Owners Policies (BOP) and Commercial Policies (CP) provide business income and extra expense coverage, better known as business interruption. Business interruption insurance is intended to protect businesses against losses as a result of disruptions to their operations. It acknowledges income losses caused by a covered loss that causes direct physical loss to the property. Coverage can be provided for complete and partial shut downs, as well as include coverage for employees who are no longer able to work as a result of the shut down. The standard language reads:

We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit Of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.

Is COVID-19 a Covered Loss?

This is the first issue: whether or not the insured has suffered “direct physical loss

of or damage to property.” The insurance policy requires this physical loss to trigger coverage. Most insurance companies will automatically point out that a virus is not damage to the property. This policy interpretation will be the most controversial and contested issue over the coming months and years.

A recent lawsuit in Illinois against Society Insurance maintains that, “Illinois courts have consistently held that the presence of a dangerous substance in a property constitutes ‘physical loss or damage.’”

I’ve seen some opinions and legal arguments arguing the physical damage requirement from COVID-19 has physically impacted “public and private property, and physical spaces in cities around the world and in the United States.”

They also stated COVID-19 “physically infects and stays on surfaces of objects or materials, ‘fomites,’ for up to 28 days,” and some cities have implemented cleaning and fumigating areas before allowing those areas to re-opened to the public. For example, if a person is infected via contact with tangible property, such as while on board a cruise ship, visiting a doctor’s office, or flying on an airplane, the contamination of physical property may qualify as direct physical loss to property.

What about Exclusions?

In a typical All-Risks policy, exclusions are meant to limit coverage as well as clear up any ambiguity in the policy. As it relates to COVID-19, the most common exclusion that is being used is, “Virus or Bacteria,” which includes language for:

Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

Alternatively, a policy may contain a contamination exclusion which embeds virus, disease or illness-causing agent in the definition of contaminant. With this or a similar exclusion, damage or any loss associated with business interruption arising from coronavirus is not covered. The language of the policy and the specific exclusion will be important. Also important is whether the virus is actually present to cause damage.

In a memo from Traveler’s Insurance discouraging insured’s from making claims, they point out “Even if there has been direct physical loss or damage to property, your policy contains a number of exclusions that are likely to apply to business interruption losses.”

Other Types of Coverages

Without digging into each policy and additional coverage, I’d like to point out that there are other policy provisions that may warrant coverage for business interruption due to COVID-19. Civil Authority may be the most common that I’ve seen legal arguments around.

Civil Authority offers coverage when access to the property is prohibited as a result of damage or dangerous physical conditions resulting from a loss. Most of the states’ stay-at-home orders essentially are an action by a public health or other governmental authority that prohibits access to the described premises or production of a product. The State of Wisconsin has prohibited access to bars, restaurants, movie theaters, churches, etc., that likely would trigger coverage. Most times, Civil Authority does not start until 72 hours after the enforcement action, and it is limited in duration.

Contamination is another coverage that I’ve seen offering a limited amount of coverage for losses related to COVID-19. Your policy may also have coverages that can be leveraged for Egress/Ingress, Contingent Business Interruption, or Supply Chain Disruption to name a few. With all the different policies and different businesses, there may be thousands of variables and situations to analyze in order to determine coverage under your specific policy.

What is the state and federal government to do?

Based on what I’ve been seeing, there is going to be a legislative war between government, insurance companies, and policyholders. I’ve seen several states draft bills that would attempt to force carriers to cover losses for businesses closed or restricted because of social distancing and shutdowns to combat COVID-19. 

There are other efforts on the federal level working to offer solutions to both the insurance companies and their policyholders. Rep. Maxine Waters (D-Calif.), chair of the House Financial Services Committee, has advanced the idea of the Pandemic Risk Insurance Act, which would create a backstop for insurance companies by starting a reinsurance program for pandemics similar to the Terrorism Risk Insurance Act that capped the total insurance losses that carriers would face. 

Businesses facing permanent closure due to losses incurred through this pandemic can’t afford to wait until these cases are fought out through the courts. Something must be done sooner, and I suspect that a public fund will be created to offer coverage for losses sustained as a result of COVID-19. This public fund will be similar to what was created after the BP Oil spill and 9/11 terrorist attacks.

What are the next steps?

On a day-to-day basis, the news is changing and updates are being shared. First and foremost, take care of your families and your employees. Businesses who can keep people employed need to stay agile and work together to maintain what is working and mitigate any potential losses. Whether you believe or have been told you don’t have any coverage, every business owner should proactively work to collect financial documents that support any economic losses related to COVID-19.

Documenting losses and maintaining records will be key. At Miller Public Adjusters, we are offering a free loss and policy review for any business in Wisconsin that has suffered damages as result of COVID-19. Please click the link below to submit your request for your free policy review and consultation. As the owner of Miller Public Adjusters, I will reach out to every business that contacts us to make sure you receive a personal response and understand your options in these very uncertain times.