As each day of this crisis passes, developments on the insurance front continue to unfold. Many articles have been written by law firms, insurance industry experts and even by members of the insurance industry on the lack of business interruption insurance to respond to the significant losses that will be experienced as a result of the Coronavirus. These articles all focus on the legislatively approved provisions limiting business interruption coverage to a direct physical loss or damage to insured property by a covered loss and the “virus” exclusion which purports to eliminate coverage in most cases. Many of our clients have been on the phone with their broker or agent and have asked whether the policy they purchased will cover some of their losses. Invariably, they have all received the same response—“NO!” Despite the negative response, attempts are being made throughout the country to try to break through the walls of these well crafted provisions.
In a March 18 letter from the United States Congress, eighteen congressmen wrote to the chief executive officers of the nation’s major insurance associations and urged them to work with their member companies to recognize financial losses due to Covid-19 as part of policyholders business interruption coverage. Today, the industry responded by rejecting the request stating that “Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as Covid-19.”
Earlier this week, the New Jersey State Assembly considered a bill to override the virus exclusion contained in the standard business interruption policy ( a provision they approved ten years ago). The bill passed a committee vote in a 4-1 tally but failed to get past the full Assembly. Among the criticisms of the bill was the likelihood of a major challenge on the grounds that it would violate the United States and New Jersey Constitutions as an interference with contract.
A New Orleans restaurant owner filed suit against Lloyd’s of London for declaratory judgment that its business interruption policy covers its damages if it is forced to close by civil authorities in response to the Coronavirus. According to the plaintiff’s attorney the policy his client purchased does not contain the exclusion relating to damages caused by a virus or pandemic. The claim is based on the order by the New Orleans Mayor limiting all restaurants to takeout orders only in an effort to stop people from congregating at restaurants and bars. The attorney argues that because some research shows that the virus can live on surfaces for as many as 28 days the element of “direct physical damage” to property is satisfied. The claim, however, is being met with research that shows that the virus can only live on untreated surfaces for as many as three days and that the surfaces can be effectively cleaned. In addition, most policies have a waiting period of up to 72 hours before any claim can be asserted. Since the case was filed, Louisiana restricted its courts to emergent matters only so we will have to wait and see what happens. We believe there will be other challenges to these policy provisions and we will continue to follow and report them to you.
As these issues develop, we believe it may be worthwhile to put your insurance company on notice of a claim for business interruption damages if your business has been shut down or severely curtailed by a civil authority or order or otherwise. Whether or not there is coverage will depend on the language of your individual policy. Although the carrier will likely deny the claim, you have placed your intention to submit the claim on the record protecting your interests in the event that some change occurs that limits the carriers from denying coverage. If you do notify your carrier of a claim, you must follow the terms of your specific policy regarding notice. In addition, in the event there is a change in the law impacting these claims you should take the time now to get your records in order for review. That would include:
- Historical and current annual financial statements
- Federal and state annual tax returns
- Monthly profit and loss statements
- Budgets, forecasts, or projections done prior to and after the event
- Monthly bank statements
- Inventory reports
- Payroll records
- Invoices and purchase orders
- General ledger accounts established to account for any expenses related to the loss such as additional payroll, shipping, temporary facilities, etc.
- Documentation to support extra expenses including receipts, invoices, time sheets, advertising costs, etc.