By: Varduhi Danielyan and Hooman Yavi
In the wake of coronavirus (COVID-19) and the related economic fallout, revenue losses are proliferating across different industries while business owners look to extrinsic solutions to stay afloat. Many businesses may find such relief through insurance claims and related litigation. New policies will likely exclude COVID-19. However, businesses may already have many types of insurance coverage that can provide relief during the pandemic.
Business Interruption Insurance
Most businesses who interact with banks or major suppliers will already have business interruption insurance, available as a part of commercial multi-peril insurance policies. Insurers require property damage or physical loss for this coverage to apply. It will be harder to argue that a company incurred direct physical damage due to COVID-19, since the pandemic does not necessarily damage property. Similarly, it will be difficult for companies to allege damages under this coverage because of supply-chain disruption or non-operation.
However, companies may have a better chance collecting from their insurance companies if they argue that their property was uninhabitable because of health and safety concerns. This would constitute a physical loss.
Business interruption insurance also covers cases when the company cannot enter the premises, so called “Ingress/Egress.” However, again this requires physical loss or damage, not simply fear of contamination. Some states have proposed bills that if passed will mandate insurance companies to cover policyholders’ lost income incurred due to COVID-19.
Civil Authority Coverage
Civil authority coverage is usually a part of property insurance policy and applies when a business has incurred income losses due to certain governmental or other authority restrictions on the premises. Most of these policies require that businesses incur direct physical loss or property damage because of authorities’ actions.
Even if insurance companies require businesses to show direct damages, in certain cases courts have found that there are damages if property is unusable because of contamination. In these cases, physical or structural alteration of the property is not required to demonstrate damages.
Trade Credit Insurance / Contingent Business Interruption Insurance
Trade credit insurance covers any debts that a company incurs because of supply chain disruptions. Usually companies must show that their supply chain partner’s property was directly damaged because of the outbreak.
Worker’s Compensation Insurance
It is likely that many employees will have workers’ compensation claims alleging that they were exposed to COVID-19 in the workplace and they were not properly protected. Employees will have to prove that they were exposed to the virus at work rather than somewhere else. Given the spread of the virus, it will be hard for employees to prove that they were infected at work rather than somewhere else.
Additionally, employers can also expect to see cases where employees claim injuries, such as back pain, caused by working remotely. Your insurance company will decide whether to satisfy each case based on its merits and submitted evidence.
Directors and Officers Liability Insurance
This insurance policy may be helpful in case shareholders or third parties decide to bring lawsuits against directors or officers alleging that the company did not take proper steps to protect against COVID-19. Most policies will likely cover Directors and Officers perils regardless of which decisions were taken regarding COVID-19 events.
Travel insurance typically covers employee travel in case of delays, cancellations, hotel fees, lost luggage, and travel medical expenses. Your insurance may cover these losses if caused by COVID-19, but it typically excludes any voluntary changes.
Event Cancellation Insurance
This policy covers cancellation, postponement, or relocation of any event that was caused by a disease or quarantine. It does not cover voluntary changes. Companies may be able to get insurers to pay for event cancelations given that all events were cancelled due to the COVID-19 lockdown.
Exclusions for Insurance Policy Coverage
All the above insurance policies have a list of standard exclusions provided by insurers. For example, some insurers may exclude bacteria or contamination. Insurance companies bear the burden of proving that exclusions apply. Every case will be evaluated based on the facts, policy wording, and applicable law to see whether an exclusion applies.
Many states are providing grace periods to policyholders to pay their premiums. In California, the Commissioner issued a notice on March 18, 2020 requesting all insurance companies to provide their policyholders a 60-day grace period to pay their premiums. Many insurance companies in other states provide grace periods of at least 30 days.
Actions Companies SHould Take
Insurers will likely have many claims during this time, which means that they will be paying more attention to the minor details of each claim. Insurers will be closely looking at every single term of the policy and whether the policyholder was compliant.
In addition, insurers will narrowly interpret policy coverage clauses and broaden any listed exclusions. Thus, it is very important for the claimant to be as prepared as possible, collect all necessary financial documentation, including but not limited to tax returns, profit and loss statements, bank statements, audit reports, invoices, and any other documentation that can support their claim.
If you want to file a claim with your insurance company, or you believe that your claim was wrongfully denied, contact us immediately at email@example.com for assistance.