Most businesses are suffering at least some losses—ranging from inconvenience to catastrophe—as the result of the COVID-19, or Novel Coronavirus, pandemic. Some of these losses may be covered by insurance policies purchased by the affected businesses.
Business Interruption Insurance
One type of potentially applicable coverage is business interruption insurance. This coverage will typically be included in property insurance policies, and potentially covers lost income, costs to remedy property damage (e.g., decontamination costs) and public relations costs due to reputational injury.
Most business interruption policies require direct physical loss or damage to the insured business’s property to trigger coverage. However, some policies may include coverage extensions adding coverage for infectious disease without physical damage or loss as a trigger. Even without such a coverage extension, depending on your particular circumstances and the language in your policy, coverage may be available if your business interruption was triggered by an actual or suspected COVID-19 contamination at the covered business premises.
Some business interruption policies include coverage for income losses caused by civil authorities prohibiting or impairing access to the insured business’s premises. Depending on policy wording, physical loss due to a covered cause may or may not be required to trigger this coverage. However, even if physical loss is required, that loss may or may not need to be caused to the insured business’s property for there to be coverage.
Business interruption policies may also provide contingent coverage, which covers interruption losses resulting from disruption of the covered business’s customers or suppliers. Such coverage typically requires that the underlying cause of disruption be of a type that would be covered for the insured business’s property.
Due to the relative novelty of this disease, most business interruption policies will not specifically deal with COVID-19 risk. However, the Insurance Services Office has recently created at least two new standard policy forms to specifically provide business interruption coverage for losses caused civil authority orders due to COVID-19. If your policy was issued in 2020, it is possible one of these new forms is included.
Liability insurance provides indemnity, and usually defense costs, for claims brought by third parties against the business or its representatives. This category includes Comprehensive General Liability (“CGL”), Directors and Officers (“D&O”), Errors and Omissions (“E&O”) and Workers’ Compensation policies.
CGL policies cover certain types of claims brought by customers and others dealing with your business. Generally, pure breach of contract claims are not covered, but claims alleging negligence or damages that go beyond the scope of the contract may be covered. In the context of COVID-19, it is important to check whether the policy includes a specific exclusion for claims arising from or relating to communicable diseases.
D&O policies are most often brought by shareholders seeking to recover economic losses due to alleged failures by company directors or officers. Other types of claims against directors and officers may also be covered, depending on the specific language in the D&O policy. D&O policies typically cover costs of defending against claims, and indemnity up to policy limits if liability is found on a covered claim.
Workers’ Compensation insurance covers costs of defense and indemnity for claims brought by employees for workplace injuries. Depending on the particular allegations, a COVID-19 claim may or may not involve the type of injury covered by workers’ compensation insurance. If workers’ compensation insurance does not apply, it would be prudent to evaluate possible coverage in other liability policies—particularly any CGL policy, which may include coverage for employment practices liability.
Event Cancellation Insurance
Event cancellation policies provide coverage for losses caused by cancellation or diminution of events due to a covered cause. An “all cause” policy, depending on the particular wording, may provide coverage for cancellations related to COVID-19. While some event cancellation policies exclude communicable diseases as a covered cause, those policies may also include optional coverage extensions that add coverage back into the policy.
Some event cancellation policies contain exclusions for pandemics or government quarantines. However, depending on the wording, coverage for your particular COVID-19 related loss may exist. Earlier this year, insurance companies started including new COVID-19 exclusions into their event cancellation policies, so one is less likely to find coverage under policies purchased in 2020.
SMVT Can Assist
SMVT’s attorneys can assist with reviewing your insurance policies and the circumstances of your particular situation to help identify which coverages may or may not apply. As discussed above, policy language varies and the facts surrounding a potential claim are important to consider. A thorough policy review is essential in light of the uncharted waters we’re all in.
We can also advise and assist you in developing strategies and methods to document your losses and important related facts as they occur. It is far better to create good records now versus trying to remember what happened in the future.
You may also be uncertain whether and when to give notice of claims to your insurance carriers. Certainly, timely notice is required under all policies, but some policies – including event cancellation policies – may have prescribed time limits to give notice and trigger coverage.
At some point, your insurance company will take a position on coverage of your claim. SMVT’s attorneys can assist with reviewing and assessing the company’s response, in light of the requirements of the applicable policy and the company’s obligations under North Carolina law.
Take particular care to promptly report your claim and to comply with all policy deadlines. If you have coverage questions, or if you feel the insurance company may not be handling your claim correctly, consult a lawyer. SMVT attorneys Matt Vaughn ([email protected]) Mike Tadych ([email protected]) and Hugh Stevens ([email protected]) have extensive experience advising and representing clients regarding problem insurance claims.