Business interruption and related forms of insurance coverage are a potential source of relief from some of the devastating economic losses being caused by the COVID-19 pandemic. Anticipating claims for coverage, some in the insurance industry are asserting that this insurance won’t cover COVID 19 losses because, in their view, there is no property damage, a typical requirement for coverage. Some state legislators have already proposed legislation which effectively rewrites existing insurance contracts by forcing insurers to cover business interruption claims regardless of contrary policy language. A bill has been introduced in Massachusetts Senate requiring every business interruption policy to be construed to cover income losses directly or indirectly resulting from the COVID-19 pandemic, “notwithstanding the terms of such policy.” Similar legislative efforts are under way in New Jersey and Ohio. The insurance industry will surely challenge these legislative efforts. Restaurant owners have already filed suit in state courts in Louisiana and California seeking declaratory judgments that their policies insure them for loss of income caused by both the virus and the orders of civil authorities. Native American tribes in Oklahoma have already filed suit against their insurers seeking declaratory judgments that their policies cover losses incurred due to the forced closure of their casinos. Given the certainty and magnitude of the business interruption losses arising both out of the pandemic and the resulting governmental orders designed to limit the spread of the virus, below are four steps that all who are impacted should undertaking now.
1. Review all policies with your insurance advisors. Gather your policies and declaration pages and review them with your attorney or other qualified insurance advisor now. Several different types of coverage are of potential interest. Business Interruption insurance is a form of property insurance (requiring physical loss) designed to cover lost income at the insured premises. Contingent Business Interruption coverage is similar but geared to cover profits lost due to the interruption of business at another location, like that of your customer or supplier. Civil authority coverage is geared to cover losses caused by the order of a civil authority that causes a loss of business income. The insurance industry has other coverages that have been designed for specific industries which may provide a benefit here. In the hospitality industry, communicable disease coverage may cover cleanup costs as well as the loss of business income. Event cancellation coverage may cover lost income due to cancelled sporting events, theatrical events and things of that nature.
2. Put Your Insurer on Notice To Preserve Your Rights. If you determine that there is a possibility of coverage under your policies, determine how long you have to give your insurer notice of a claim on each policy, and the means by which notice of such claim must be given. Failure to comply with notice deadlines and claim submissions requirements can bar an otherwise meritorious claim. The claim must be submitted in writing in accordance with the requirements of the policy. A phone call to the agent is generally not sufficient. You do not want to have your claim denied due the failure to comply with the notice and submission requirements of your insurance contract.
3. Document Your Claim. In order to recover on your policy, you are going to have to be able to prove that you suffered losses covered by the policy. You should begin to assemble the financial data that you will use to present your claim. This includes financial reports and any other documents for the past few years (prior to the pandemic) which demonstrate the profitability and trends of your business, as well as current documentation relating to the cause of your lost income and, ultimately, future financial reports showing the decline in your income. If a contract is cancelled due to COVID 19, keep all related documentation, being sure to insist that any cancellations are in writing so that you can keep that writing to use as part of your claim. If there is evidence of the virus on your property, including the presence of persons suffering from COVID 19 symptoms, that should be maintained, along with evidence of cleanup costs, as a claim for those costs may be recoverable in addition to losses.
4. Assemble Your Team. To put yourself in the best position for recovering what you are entitled to under your insurance policies, bring your accountant and other financial experts into the effort early so that the claim package that you ultimately present to your insurer most accurately shows your loss. Legal counsel can provide guidance in what your rights and obligations are under the policies.
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