As COVID-19 shutdown orders hit the economy last spring, businesses of all sizes looked to their insurance policies for the promised coverage of lost income. The insurance industry responded with blanket coverage denials. By the end of 2020, over 1,400 lawsuits regarding business interruption coverage were filed. The insurance industry challenged virtually all business interruption claims from policyholders.
While the courts dismissed many policyholder claims, many survived the initial court challenges, and some courts granted summary judgment in favor of the policyholders. Decisions for and against policyholders are now working their way up to the appellate courts.
Whether a suit survives initial court challenges and ultimately prevails depends in large part on its framing. The guidance below can help maximize your chances of surviving the insurance company’s motion to dismiss and getting your claim paid.
1. Read your policy. Many different types of insurance policies may provide coverage for COVID-19-related losses. Each policy requires careful review, as wording can differ even among standard insurance policy forms. Property policies cover a variety of property damage and business interruption risks. Read the insuring provisions as well as the exclusions, as there may be several different insuring agreements providing separate paths to coverage.
2. Allege some form of property damage to trigger coverage if the facts permit it. The mere presence of the virus within a set geographic area (typically 5 miles) triggers Civil Authority coverage. For Civil Authority coverage, the property damage need not occur on your insured premises, and most policyholder facilities are within 5 miles of a hospital or care center where the virus is certain to be present. Further, governments are posting the presence, numbers and rates of the virus in towns and counties across the country, which should help establish that the virus was within a set geographic distance from your insured premise. Of course, to trigger some forms of additional first party property coverage, property damage at a premises should be alleged. So investigate, research and allege what you find.
3. Do not be fooled by the frequently asserted insurance company defense that only “structural” physical damage triggers coverage. While some courts unfortunately have accepted this argument (sometimes without policy language support), many courts have rejected it expressly. Courts have held that smoke in the air constitutes property damage triggering property policies, as have methamphetamine fumes, fumes from Chinese drywall, asbestos fibers, other airborne hazards, and even metadata on computer disks.
4. Examine the government orders affecting your locations. Many, if not most government orders expressly state that COVID-19 causes property damage and list that as a reason for curtailment of services or access to your business that causes a business interruption loss.
For example, the preamble to New York City’s Emergency Executive Order No. 100, dated March 16, 2020, expressly states: “Whereas, this order is given because of the propensity of the virus to spread person to person and also because the virus is causing property loss and damage…” Some courts have expressly referenced such statements in government orders as dispositive on this point.
5. Look for a virus exclusion. Many policies do not contain one. If your policy does not contain a virus exclusion, state that expressly in your claim. The insurance industry has had virus exclusions available to put in their standard form property policies since 2006. Your insurance company’s failure to put a virus exclusion into your policy shows that it accepted that risk knowingly. Insurance industry assertions that insurance companies never could have contemplated that viruses would cause property damage and business interruption losses are belied by the insurance industry’s representations to insurance commissioners in 2006.
Not all virus exclusions are necessarily dispositive. Some exclusions explicitly bar coverage for pandemics, viruses or any agent that threatens human health. n other policies, the word “virus” is simply tacked onto an existing exclusion for mold or bacteria, or to a pollution exclusion. Policyholders have argued that coverage cannot be barred simply by slipping the word “virus” into a pollution exclusion, for example, which is designed to exclude coverage for liability triggered by harmful substances released by the policyholder. In fact, at least one federal court recently ruled that COVID-19 is not pollution.
6. Look at the variety of potentially applicable coverages, limits, and periods of loss or restoration in your policy. Figure out the best way to maximize your coverage. The coverages may not be mutually exclusive, and there may be sub-limits. Allege as many bases for coverage as you have. That will give you bargaining chips in discussing resolution of your claim with your insurance company. It may be easier for your insurance company to pay one form of coverage claim than others, maybe because of its reinsurance treaties.
7. Assemble a team to gather the facts about your claim and the extent of your loss. The loss will likely be continuing even today as rates of exposure continue to increase and the government rescinds orders permitting businesses to partially reopen. Someone familiar with your policies and your losses should be included on that team.
8. Provide notice of your claim as best you can as soon as you can. Similarly, submit a proof of loss when due, as best you can, stating expressly that the notice and proof of claim will be supplemented as your loss continues and more facts and further damages are identified. As noted above, your loss probably is continuing today.
9. Do a cost-benefit analysis of pursuing your claim. What is your total loss likely to be, and what are your chances of success in the jurisdiction in which you may pursue your claim? How does that compare to the cost of pursuing your claim? Pursuing insurance claims must be a rational economic decision.
10. Do not give up. Be relentless. Even if you get a claim denial, respond that you disagree. Case law is still developing rapidly in this area, so you may want to pursue your claim a bit later as your loss continues to grow and as more courts rule in favor of policyholders. Do not lose your claim at your desk.