Many of my firm’s business clients have been calling me to see if they can obtain money in addition to available government assistance for the losses they are suffering due to the COVID-19 pandemic. I advise them that it all starts with a deep dive into their insurance policies. Let’s face it, most of us don’t read every single paragraph and rider to our insurance policies though we should. While this activity normally ranks up there on the fun-scale with wisdom teeth extraction, it is an important and necessary step if your business needs funds and has no other recourse now that the gov’t bailout has run out of money.
First the bad news: After the advent of SARS (which BTW also was a coronavirus) and H1N1 (AKA Swine Flu), most insurers added specific exclusions for closures caused by “communicable diseases” or “pandemics.” So the first step is to look to see if that exclusion is there. If it is not, then you business likely has several potential coverage areas that will allow you to file. The insurance industry has developed specialty products that expressly include a specific coverage grant, usually as part of a commercial property package, for losses arising out of communicable diseases. So you may have in fact paid for the privilege to get the coverage.
If a pandemic exclusion exists, does, then all still may not be lost but it will be harder to get coverage and may require litigation. Some possibilities will be discussed below:
A: If you have communicable disease coverage – think hard about all manner of losses: Don’t forget areas of work that have to be done that could be added to the claim. Costs of cleaning the facility; costs of PPE acquisition and disposal; interest on loans that became necessary due to the pandemic; storage costs to move stock or furniture into a storage facility; and even costs of a PR firm’s help in crafting messages to customers and suppliers are all items that can be reimbursed under a covered loss. In addition, the insurer may try to keep your claims limited to the level of coverage for the communicable disease sub-limit of the policy, but a fair argument can be made that the communicable disease loss led to losses covered under the general business interruption section of the policy.
In that vein, your property damage clause may cover you for at least the cost of clean up. Even without physical damage to property, there is some support in the case law for coverage arising out of the inability to use the property. Under this area of cases, if a policyholder suffers a loss due to, for example, a harmful substance rendering the property unusable or uninhabitable, even temporarily, that might be sufficient to satisfy the physical loss or damage requirement
B: Event Cancellation Insurance: If you had to cancel a large event like a food fair, festival or convention, even if there is a communicable disease exclusion under your policy, you can argue that the cancellation was caused by the government shutdown order and not the disease itself. Here though the cancellation would have to be actually ordered not merely suggested and you will not get coverage if you canceled “out of prudence” or because you thought you might take a loss or not make as much money. It has to be something our of your decision-making and control.
C: Contingent Business Interruption: This coverage may be in your policy. It is for situations where one of your main suppliers or biggest customers – but not you – has been put out of business by the pandemic. Contingent business interruption insurance expressly covers the policyholder’s lost profits and other economic losses that result from loss or damage to the property of a supplier (i.e., a third-party entity upstream in the supply chain) or a customer or client (i.e., a third-party downstream in the supply chain).
Conclusion: Businesses need to look to all potential areas for funding at this time. Do not overlook the time-consuming task of close examination of your insurance policy for potential coverage areas. If you are going to file a claim, take care to search for and itemize each loss and potential loss. Get help from professionals to help sift through the policy and draft the claim documents. Don’t be surprised if you get an immediate denial – but review the denial letter carefully and see if there is a way to fight the basis for the non-coverage that the insurer is relying upon. Also, whenever the smoke clears, have your broker look for better and more expansive coverage (if you can afford it) to be in a better position to get relief when this happens again.
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