Will my business interruption insurance cover my losses incurred due to having to cease operations because of the coronavirus pandemic?
Business owners facing a shut-down of their premises may have financial recourse in the business interruption coverage part of their first party property-casualty policies. While business interruption coverage issues associated with communicable disease are novel and little case law guidance exists interpreting these issues, there is the potential for a business owner to recover business interruption losses through insurance. This requires a careful examination of the facts leading to the interruption and the policy language itself. Such coverage may be available through a special “communicable disease” business interruption endorsement or through a policy's general business interruption coverage – either due to direct physical loss or a government order shutting down a business’ operation or facility.
On the latter coverage, there are hurdles both in terms of overcoming policy language and proving such a claim. Concerning the policy language, policies often cover business interruption only after an insured has suffered direct physical damage to their property. Direct physical damage typically requires physical injury to tangible property such as damage to a plant or facility. Obviously, with a business interruption loss due to COVID-19, physical property damage is unlikely. However, certain policies may cover “physical loss” in addition to “physical damage,” which could include loss of use of a property without showing actual physical damage. Separately, policies may also specify that the presence of the virus must actually exist on the property before triggering business interruption coverage. Such a requirement could lead to significant proof issues, including the need for expert analysis.
The key take-away at this early stage is to carefully examine the underlying policy language and the facts to determine if the potential for coverage exists. Given the legal uncertainties, strongly consider tendering any business interruption loss to your first party property casualty carrier for a coverage position and to avoid later notice problems under the policy.
This is a fluid and rapidly changing situation and these resources are current only as of the date of publication. We recommend that you contact your local Quarles & Brady attorney regarding the most up-to-date information or with any other questions regarding this subject matter, or contact Patrick Nolan: (414) 277-5465 / [email protected].