Are you wondering if your commercial business interruption insurance policy will provide coverage for your financial losses incurred during this Coronavirus (COVID-19) pandemic? You are not alone and the answer can be a bit elusive. Today is the start of a series of blogs that I will be writing to help inform you about the ever-changing insurance and legal landscape around the coronavirus and business interruption insurance coverage. I encourage each of you to stay informed and work with trusted sources. This initial blog will review a few cases that may play a part in determining the impact viruses play when filing commercial business interruption claims.
Your business may be the lone exception if it has not been financially impacted by the coronavirus pandemic. Some businesses may never recover from the financial losses they incur while much of the world’s service economy is already shuttered or operating on a restricted basis.
As experts in the property insurance claim industry, we are questioned hourly by our clients as to whether their commercial insurance policies afford them protection for the financial losses they are suffering during this pandemic.
Generally speaking, property insurance typically covers a physical loss or damage to a property from a Covered Cause of loss. Many businesses carry first party Business Interruption (BI) coverage, which is intended to compensate an insured for the income lost during the period of restoration or the time necessary to repair or restore the physical damage to the insured property as a result of the Covered Cause of loss.
Many business owners assume that the financial losses they incur during this pandemic would or should be covered by their BI insurance. There is a catch, though. Business interruption coverage is not triggered unless or until there is first a physical loss by a Covered Cause to an insured property. Coronavirus (officially COVID-19) is not a fire, not a tornado, nor a hurricane, where physical damage cannot be questioned by an insurance company.
The question then becomes:
Does the presence of a virus in a commercial setting constitute direct physical loss required to trigger Business Interruption coverage?
The answer is arguably “YES.”
The seminal cases for support for this argument can be found in Motorists Mutual Ins. Co. v. Hardinger, wherein the Third Circuit Court of Appeals found that the presence of E.coli bacteria in the well of a house could constitute physical loss or damage to a structure, and Gregory Packaging Inc. v. Travelers, wherein the US District Court of New Jersey held that “courts considering non-structural property damage claims have found that buildings rendered uninhabitable by dangerous gases or bacteria suffered direct physical loss or damage.”
Furthermore, the airspace within a building long has been recognized to be real property. However, if a property is shuttered merely due to fears of the coronavirus, but the building remains habitable, the physical loss requirements likely won’t be met.
Interpolating then, would it be necessary for a worker to become infected with COVID-19 before physical damage could be found and thus the financial loss that the business incurs as a result of closing be covered by BI insurance? Probably.
And even if the initial threshold for a direct physical loss is met, the policyholder could run into other issues depending on the policy language. Some commercial property policies with business interruption coverage contain exclusions for property damage arising from pathogens, bacteria, viruses and other disease-causing agents.
If you have questions about your own financial losses and whether your commercial Business Interruption coverage would afford you protection, please reach out to the claim solution experts at Sill Company.
Sill is among the leading public insurance claims adjusters in North America. The company has nine decades of experience helping commercial policyholders both understand their specific coverage and then obtain the maximum amount due for their loss. The Business Interruption team at Sill focuses entirely on the special situations which result in business interruption claims. Our team is here to help you understand your coverage and maximize your claim recovery. Contact our team today for more information regarding your coverage. Stay tuned for our next blogs where we cover What Documentation and Record-Keeping May be Required to Support Your Business Interruption Claim? and another covering on CIVIL AUTHORITY COVERAGE: What Happens if the Government Tells You to Close Because of Coronavirus?