On March 23, 2020, shortly after the Governors of California, New York, Connecticut and New Jersey issued orders closing non-essential businesses, we recommended that businesses review their insurance policies to determine if they had either business interruption coverage or civil authority coverage that might be available to lessen the economic blow of COVID-19. As explained here, business interruption coverage generally allows a business to recover certain losses in the event that the business suffers physical damage or loss that prevents it from operating its business, whereas civil authority coverage, generally allows a business to recover losses when a government authority issues an order that closes a business or prevents it from conducting normal operations. We also recommended that businesses submit any claims expeditiously because virtually all policies require policy holders to submit claims “promptly,” and the failure to do so provides a basis to deny a claim.
Since our initial article, many insurers have taken the position that claims related to COVID-19 are not covered, either because there has been no physical damage to the property or because the policy expressly excluded coverage for viral contamination. In turn, as reported here, here, and here, some members of Congress have asked insurers to cover COVID-19 losses under business interruption policies. And, as reported here and here, some state legislators, including lawmakers in New Jersey, New York, Ohio, Louisiana and Pennsylvania, have proposed legislation that would require insurers to provide some coverage for losses stemming from COVID-19. The Congressional requests and the proposed legislation has met resistance from insurers, who have argued that forcing them to cover such claims, could lead them to insolvency. Indeed, the National Association of Insurance Commissioners, (“NAIC”), which is comprised of the insurance regulators of the 50 states and the District of Columbia, has urged Congress not to take action that would require insurers to cover COVID-19 business interruption claims where the policy excludes coverage for communicable diseases. Further, any legislation that purports to expand the coverage obligations of any insurance policy would likely be challenged as unconstitutional under the Contracts Clause of the U.S. Constitution, which, with some exceptions, generally prohibits legislation that impairs contractual obligations.
Thus, business owners should not await (or count on) legislation to decide their course of action. Rather, businesses, particularly those in the restaurant, hospitality and event industries, should review their insurance policies to determine what coverage may be available. As explained here, some policies sold to businesses operating in the restaurant and hospitality industry may expressly address losses caused by viruses. Moreover, some businesses may have event cancellation coverage available to them. As explained here, the organizers of the Wimbledon Championship expect to receive a large insurance payment because COVID-19 resulted in the cancellation of the tennis tournament.
Several businesses have already filed lawsuits seeking declarations that they are entitled to recover businesses losses resulting from the COVID-19 pandemic. These lawsuits generally allege that a civil authority, either a county or state official, ordered the business to cease normal operations to contain the spread of COVID-19 and that potential COVID-19 contamination constitutes physical damage or loss, which is either expressly covered by the policy or is not expressly excluded by the policy. At one end of the spectrum, are lawsuits which allege that the business has a policy that expressly covers losses associated with COVID-19. For example, two California restaurants filed a complaint that asserts a claim for civil authority coverage and alleges that the insurance policy “specifically extends coverage to direct physical loss or damage caused by a virus.” Similarly, a complaint filed in Southern District of Texas seeks coverage under a ‘Pandemic Event Endorsement,’ which expressly covered, among other diseases, “Severe Acute Respiratory Syndrome-associated Coronavirus (SARs-CoV) disease” and its mutations and variants, but alleges that the insurer denied coverage because it concluded that COVID-19 is not a mutation or variant of SARs-CoV disease. At the other end of the spectrum, is a lawsuit filed by restaurants and movie theaters in the Northern District of Illinois, which alleges that the businesses are entitled to insurance coverage because the Illinois Governor ordered their businesses to close and their insurance policies do not expressly exclude losses “caused by a virus.” The Northern District of Illinois suit alleges that if the insurer wished to exclude pandemic-related losses, it could have done so, as many insurers have.
Insurance policies are contracts and thus, are interpreted as such. Accordingly, a business whose policy expressly covers viral contamination or a pandemic is more likely to succeed on a claim for coverage than a business whose policy expressly excludes coverage for viruses. Given the variances in policy language, whether a particular policy will provide coverage will depend upon the actual language of the policy and the specific circumstances giving rise to the claim. Businesses should therefore review their policies to determine their rights.