Business interruption insurance can be a valuable tool for companies who experience significant reductions in their business due to unforeseen circumstances. While this type of insurance generally does not garner much attention, the COVID-19 pandemic has trust business interruption insurance into the limelight. In most cases, this type of insurance is designed to help business owners in the event of a natural disaster. Under some business interruption insurance policies, business owners can also recover compensation in the event operations are ceased due to governmental orders. In light of this pandemic, in which both state and local authorities have issued quarantine and stay at home orders, we need to revisit what we know about how this insurance will work.
What is happening with business interruption insurance?
Soon after stay at home and quarantine orders began due to the COVID-19 pandemic, many insurers took the position that claims related to the virus were not covered. This was either because there was no physical damage to a business property or because the policy specifically excluded coverage for viral contamination.
In response to the insurance companies making these declarations, members of Congress began to ask insurers to cover COVID-19 losses under business interruption policies. Some state legislators around the country have also proposed legislation that would require insurers to cover COVID-19-related losses.
However, insurance companies have pushed back, claiming that forcing them to cover these claims could lead to their insolvency. As of this writing, no laws have passed forcing insurers to cover COVID-19 claims.
What should business owners do?
Business owners should not wait to see how legislation plays out before making a claim under their business interruption policies. We recommend that all businesses submit any claims to their insurer as soon as possible so that an insurance carrier cannot deny a claim because it was not reported “promptly.”
Business owners should also thoroughly review their insurance policies to see if they already have coverage for losses stemming from COVID-19. Some policies sold to businesses, particularly those in the restaurant in hospitality industries, may already address losses covered by viruses. Other policies may also have “event cancellation” coverage available to them.
Many business owners across the state of California have filed lawsuits against insurance carriers, declaring that they are entitled coverage for losses resulting from the coronavirus pandemic. In most cases, the lawsuits allege that a civil authority (state or local), ordered their business to cease normal operations in an effort to prevent the spread of COVID-19. Some business owners have also claimed that potential COVID-19 contamination constitutes physical damage or loss per their policy coverage.
Businesses who have been affected by COVID-19 should certainly proceed forward with any insurance claims they believe cover losses they sustain during this pandemic. Barring any specific laws passed by state or federal authorities, whether or not a business receives coverage through their business interruption policy will likely revolve around the exact wording of the policy itself. Businesses In California are encouraged to seek assistance from an attorney with extensive knowledge of this type of policy coverage so the attorney can completely review the policy. In many cases, if the policy is worded ambiguously, the presumption is that the policyholder should be covered.
California Insurance Commissioner Ricardo Lara recently issued a notice requiring insurance companies and other California Department of Insurance licensees to fairly investigate all business interruption claims caused by COVID-19. As these claims proceed, our Orange County personal injury lawyers will have a better understanding of who is being covered and how state regulators will address this issue.