Business losses resulting from the COVID-19 pandemic may be covered by commercial property insurance and owners/managers should critically review policy clauses to determine the extent business interruption is an insured event, Michael Perlmuter, chief executive officer and general counsel of Cleveland-based Alex N. Sill Company, said.
The possibility businesses may successfully recover for disruption damages caused by the coronavirus lies buried in a policy’s inclusions and exclusions. Moreover, the policy language may be subject to differing judicial opinions.
Coverage issues will escalate as claims and litigation are filed and state and federal authorities become involved.
The New York Department of Financial Services in anticipation of the prospective financial implications caused by the coronavirus and recognizing the complexity of policy terms already has ordered property and casualty insurers to adopt significant transparency. As such, the insurers must timely and equitably explain the benefits and protection coverages related to COVID-19 to its policyholders.
“Business interruption and determination as to whether a company can successfully file a claim is certainly teed-up in the line of important issues which will bubble to the top in coming weeks,” said Perlmuter.
“Several possibilities exist for companies to benefit from some form of coverage. In the broadest sense, recovery may be limited by the requirement that in order to successfully make a claim for business loss, there first must be a direct physical loss to an insured property,” he added.
Sill, with 16 offices throughout the U.S. and Canada, is among the leading public insurance claims adjusters. The company has nine decades of experience helping commercial policyholders both understand their specific coverages and then obtain the maximum amount due for their loss. The Sill Business Interruption Group (SillBIG) focuses entirely on the special situations which result in business interruption claims.
“Property insurance typically covers a “physical” loss or damage to property. Although many businesses may not look at losses due to coronavirus as a physical loss, the mere presence of the virus may constitute an insured loss, thus triggering coverage under the policy. In fact, many U.S. courts have recognized that contamination of property by a virus may establish the damage element of an insurance claim. As airspace within a building has been long recognized as real property, the presence of coronavirus inside of a building, ship or other structure would constitute damage to property,” said Perlmuter.
Business interruption coverage is intended to compensate an insured for the income lost during the period of restoration or the time necessary to repair or restore the physical damage to the covered property.
“Associated” coverage, known as “Extra Expense” coverage is intended to reimburse an insured for additional costs in excess of normal operating expenses a business incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss.
Perlmuter said businesses should be aware of potential Contingent Business Interruption (CBI) coverage in their policies. CBI may be present in some commercial property policies, and if included provides protection against revenue related losses. CBI typically covers lost earnings that are the result of a third-party supplier or distributor shutdown whose interruption in turn directly impacts the insured’s ability to produce a product or provide a service.
“Most businesses are not as well versed on CBI,” added Perlmuter. “Many companies may lose earnings because they incur additional costs and/or are unable to conduct business with companies directly impacted by the coronavirus outbreak. Businesses should carefully review the provisions contained in their policy’s CBI provisions.”
Regarding policyholders who have cancelled planned events, Perlmuter advises businesses to have policies reviewed by experts for first part Event Cancellation coverage.
But like all claim issues involving coronavirus, coverage analyses are not simple, nor will they be easily accepted by the insurers.
“Consider how policies will be scrutinized upon the cancellation of events, such as those by MLB, NBA, NHL, NCAA, MLS, NASCAR, the PGA and many other sports organizations. Policyholders with Event Cancellation Insurance will be scouring the language to determine what is recoverable, while the insurers will be attempting to minimize their own losses. Insurance companies will be arguing in favor of exclusions or limitations. Meanwhile, the insureds need to be equipped for the battle armed with fortitude and perseverance to staunchly maintain the limitations and exclusions do not apply as broadly as the insurers contend,” said Perlmuter.
Sill services clients from its corporate headquarters in Cleveland, Ohio and regional offices in Denver, Colorado; Orlando, Florida; Atlanta, Georgia; Chicago, Illinois; Indianapolis, Indiana; Baltimore, Maryland; Detroit, Michigan; New York, New York; Dayton, Ohio; Philadelphia and Pittsburgh, Pennsylvania; Portland, Oregon; Seattle, Washington; Milwaukee, Wisconsin; Washington, D.C. and Toronto, Canada.