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SS+D COVID-19 Response Team: Commercial Insurance Policies and COVID-19: Is There Coverage? March 24, 2020

March 24, 2020 | Sebaly Shillito + Dyer

On March 11, 2020, the World Health Organization officially declared the Coronavirus to be a global pandemic. This pandemic and its resulting health, safety, and economic consequences are having devastating affects throughout the United States. Seemingly every hour, there is news of new closures, stricter quarantines, and genuine anxiety over the impact this pandemic is having. While not nearly as pressing as the human risk, business losses tied to COVID-19 are cutting across the entire economy.

Owners and business executives should not lose sight of potential sources of relief. While federal and state governments will provide some assistance, companies should carefully review their insurance policies to determine whether they might provide coverage. As usual, the devil is in the details of each company’s unique situation, and the terms of its specific policy make all the difference. In the coming weeks and months, some businesses may obtain indemnification for: business interruption, supply chain losses, and lost revenues following government quarantines.

It is critical for businesses to act quickly to have their insurance policies analyzed within the context of the relevant insurance coverage laws. Insurance policies generally require submission of a claim within a relatively short time (e.g. 30 days) from the event (e.g. government shutdown) causing the loss. If a claim is not timely, the insurance company may be permitted to deny a claim it would otherwise be obligated to pay. There are several sources of potential insurance coverage for business related to COVID-19.

A common component of many commercial property insurance policies involves business interruption coverage. Business interruption insurance is intended to protect against lost income and extra expenses after a covered peril disrupts business operations. To trigger business interruption coverage, insurance policies typically require the policyholder sustain “direct physical loss of or damage to” insured property. Courts across the country have been divided on this issue, without any black and white rule determining coverage. This is not to say that rules of thumb haven’t developed, with several Courts focusing upon whether an insured’s property has become “contaminated,” unusable, or otherwise unfit for its intended use. The determination of whether “physical loss” has occurred requires a close examination of the particular facts of any loss or dispute, and it is not a foregone conclusion that a pandemic fails to trigger business interruption coverage.

In addition to business interruption coverage, a property policy may include contingent coverage, safeguarding against lost earnings from a shutdown along the supply chain. Whether it is a third-party supplier or distributor, such coverage can protect a company from logistics collapses directly impacting a business’s operations. For example, cascading losses from interruption of an identified source of raw materials, parts, or supplies may be covered – with the significant caveat that such supplier disruptions likely also must involve a direct physical loss. The same analysis would come into play for a suspended supplier. And while insurance companies will be quick to point to stand-alone bacterial endorsements and exclusions, such language may not bar coverage, particularly as viruses are not bacteria.

Another source of relief under a commercial property policy relates to any endorsements for income losses sustained following an adverse “civil authority” order or prohibition impairing access to a policyholder’s premises. Declarations of a public health emergency, quarantine restriction, or any other act of a responsible governmental body may trigger coverage. Depending upon the provision’s specific wording, this civil authority protection may not require that the restricted access result from “physical loss” by a covered peril, and thus might make the road to obtaining relief after COVID-19 shutdowns significantly easier. Further coverage lines potentially included with civil authority coverage, can include: utility interruptions, event cancellation, and specialty lines such as: political risk and trade disruption insurance.

The Coronavirus pandemic is an evolving threat. SS+D’s experienced crisis management professionals are closely monitoring the pandemic, as well as the regulatory and insurance responses to COVID-19. Drawing on SS+D’s longstanding capabilities in insurance, employment, and corporate law, we can help in not only reviewing insurance policies but in providing guidance to help clients obtain critical urgent relief on several fronts.

If you have questions regarding this update, please contact the SS+D lawyer with whom you usually work or Toby Henderson, Head of SS+D’s Insurance Claims Practice, at 937-222-2508.

The SS+D COVID-19 Response Team was formed to provide clients, colleagues, and friends of the Firm updates for the foreseeable future on COVID-19 issues facing businesses, executives, and employees. Please let us know if there are any items/issues you would like for us to track or summarize.

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