The COVID-19 pandemic has leveled a blow against businesses everywhere. The Governors of New York, California, Illinois, and Pennsylvania, for example, have ordered all non-essential businesses to close their physical locations and the California Governor has ordered all residents, except those performing essential functions, to stay home. Governors across the country have issued orders restricting various business activities. The trend is likely to continue in the coming weeks and to adversely impact the bottom line of many businesses.
Some businesses, however, may have business interruption insurance coverage and/or civil authority insurance coverage in their insurance policies that might lessen the economic blow of COVID-19. Business interruption coverage could be available to a business that closed its doors to remediate possible COVID-19 contamination. Civil authority coverage, could be available if a government authority, such as a state governor or city mayor, prohibited access to a business location.
Business interruption insurance indemnifies against losses caused by the inability to continue business operations due to a hazard or peril “insured against,” such as a fire or storm that causes physical damage to a business’ physical plant or real property. It allows a business to recover profits lost during the time reasonably necessary to restore or repair the property. Further, if a policy provides for business interruption with “extra expense,” the business may be able to recover the rent and payroll expenses it incurred while closed for the repair or replacement of the damaged property. Businesses that closed their doors due to concerns about COVID-19 contamination may be able to seek coverage for the period of time necessary to decontaminate the premises, depending upon the terms of the specific policy (some policies may exclude coverage for contamination).
In addition, businesses that have civil authority coverage and that have been ordered to cease normal operations, may be able to obtain indemnity for their losses. The period of coverage usually begins with the civil authority order that restricts access to the business and ends when the order is lifted or after a specified period of days, whichever is shorter. Some policies tie the availability of civil authority coverage to physical damage, while others do not.
Virtually all policies require the insured to provide prompt notice of any claim. The duty to report a claim is normally triggered when the circumstances known to the insured business owner would suggest to a reasonable person that a claim might be possible. Any business that has shut down, either to remediate contamination or in response to a civil authority order, would likely be on notice that it has a potential claim. Accordingly, business owners should review their policies now and consult counsel or their insurance broker concerning possible claims for coverage.