Commercial Business Interruption & Insurance Coverage for Coronavirus Impact

Businesses are being significantly impacted by COVID-19 and Michael Perlmuter, CEO & General Counsel, from Sill shares some information for businesses to consider as they are

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?

Businesses Possibly Covered for COVID-19 Losses

Businesses are being significantly impacted by COVID-19 and Michael Perlmuter, CEO & General Counsel, from Sill shares some information for businesses to consider as they are

Businesses are being significantly impacted by COVID-19 and Michael Perlmuter, CEO & General Counsel, from Sill shares some information for businesses to consider as they are impacted. The business losses resulting from the COVID-19 pandemic may be covered by commercial property insurance and owners/managers should critically review policy clauses to determine the extent business interruption is an insured event under their individual policy.

Furthermore, the New York Department of Financial Services in anticipation of the prospective financial implications caused by coronavirus disruptions, has ordered property and casualty insurers to timely and equitably explain the benefits and protection coverages related to COVID-19 to its policyholders.

Business interruption and determination as to whether a company can successfully file a claim is certainly teed-up in the line of important issues which will bubble to the top in coming weeks. Several possibilities exist for companies to benefit from some form of coverage. In the broadest sense, recovery may be limited by the requirement that in order to successfully make a claim for business loss, there first must be a direct physical loss to an insured property.

Property insurance typically covers a physical loss or damage to property. Although many businesses may not look at losses due to Coronavirus as a “physical” loss, the mere presence of the virus may constitute an insured loss, thus triggering coverage under the policy. In fact, many courts across the United States have recognized that contamination of property by a virus may establish the damage element of an insurance claim. As airspace within a building has been long recognized as real property, the presence of Coronavirus inside of a building, ship, or other structure would constitute damage to property. Some commercial property policies with business interruption coverage contain exclusions for property damage arising from pathogens, bacteria, viruses and other disease-causing agents.

Business interruption coverage 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 covered property. Associated coverage, known as Extra Expense coverage is intended to reimburse an insured for additional costs in excess of normal operating expenses that a business incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss.

Businesses also should be aware of potential Contingent Business Interruption (CBI) coverage in their policies. CBI may be present in some commercial property policies, and if included provides protection against revenue related losses. CBI typically covers lost earnings that are the result of a third-party supplier or distributor shutdown whose interruption in turn directly impacts the insured’s ability to produce a product or provide a service.

Most businesses are not as well versed on CBI. Many companies may lose earnings because they incur additional costs and/or are unable to conduct business with companies directly impacted by the Coronavirus outbreak. Businesses should carefully review the provisions contained in their policy’s CBI provisions.

Finally, my advice to business policyholders who have cancelled planned events to have policies reviewed by experts for first part Event Cancellation coverage. But like all of the claims issues involving coronavirus, coverage analyses are not simple nor will they be easily accepted by the insurers.

Consider how policies will be scrutinized upon the cancellation of events, such as those by MLB, NBA, NHL, NCAA, MLS, NASCAR, the PGA and many other sports organizations. Policyholders with Event Cancellation Insurance will be scouring the language to determine what is recoverable, while the insurers will be attempting to minimize their own losses. Insurance companies will be arguing in favor of exclusions or limitations. Meanwhile, the insureds need to be equipped for the battle armed with fortitude and perseverance to staunchly maintain the limitations and exclusions do not apply as broadly as the insurers contend. 

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 or for more information regarding your coverage. Here are two article with additional information as well. The first article covers the application of commercial property insurance to COVID-19 claims and the other article covers areas of coverage that are up for case by case interpretation.

Analyzing the Notre Dame Cathedral Disaster

Analyzing the Notre Dame Cathedral Disaster From an Insurance Loss Perspective

By: Michael Perlmuter, J.D.  (Chief Executive Officer and General Counsel)
Alex N. Sill Company, LLC
North America’s Leading Public Adjuster and Loss Consultant

“Feu dans la charpente de Notre Dame” by LeLaisserPasserA38 is licensed under CC BY-SA 4.0

I watched along with millions of people around the world in disbelief and sadness as flames engulfed Paris’ majestic Notre Dame Cathedral.

I watched along with millions of people around the world in disbelief and sadness as flames engulfed Paris’ majesticNotre Dame Cathedral.The iconic international treasure has served as a place of Catholic worship for more than eight centuries and hosts nearly 13 million visitors of all ethnicities and religions each year.

 

Notre Dame (“Our Lady”) is more than just a tangible symbol of national pride for the citizens of France and a place to worship. The Gothic structure, its architecture and archives, have been home to historical treasures including documents, art and religious relics.

Thankfully, the devastating fire was ultimately controlled with no reported loss of life.  As such, total disaster was averted.

With the flames now extinguished, attention has quickly turned to recovering from the loss which could prospectively be $1 billion or more and restoring this great monument to its former glory.

Why are we weighing in here?

To put a twist on the catchy slogan from Farmers Insurance, we know a thing or two about fires and specifically iconic structures of worship because we’ve seen a thing or two. We know what the stewards of the cathedral face in rebuilding, the concerns they have about how to replace the irreplaceable, what it will likely cost to rebuild and how long it will likely take. Of course, many of these concerns are similar to our clients’ concerns who have suffered similarly devastating, albeit less internationally consequential losses.

So, if you could suspend your disbelief here, I would like to walk you through what the claims process would look like if Notre Dame Cathedral was our client (they’re not; while we work with clients across the United States, we don’t adjust losses in France) and if the building was insured for such a loss (it was not directly insured)**.

The First 48 Hours Are Crucial

Once a fire is brought under control and the last flames are extinguished, we would encourage the stewards of this building (the insured) to take the following actions:

• Review and understand your insurance coverages, extensions, limitations, and exclusions;
• Determine mutually setting the scope of the damage with your insurance company adjuster;
• Document, in detail, the damage to both the structure and any contents, be it furniture, fixtures, equipment, or fine arts; and
• Initiate the negotiation process with the insurer, including, importantly, agreeing on a minimum loss threshold in order to recover a preliminary advance payment to assist in the beginning of the process of re-building, are critical to ensuring a final fair settlement under the terms of the insured’s policy.

Preparation and Presentation of the Claim

Now that we’ve walked you through the initial steps, it is important to point out that all insureds, in this case the Cathedral, must be made aware the burden of proof is on them to prove their damages.

For context on this point, understand the anatomy of an insurance claim: the insurance company will retain (and pay) two separate experts to assess the damage to your building and to your contents and then will furnish those damage estimates to a carrier-employed adjuster to make you an offer of settlement. Clearly, it is not in the financial interest of the insurance company to “overpay” any given claim.

Once that offer is made to an insured, it is incumbent upon an insured to provide countervailing experts’ reports of damages that are larger in scope and in damages in order to rebut the carriers’ reports. Without that countervailing evidence, the Cathedral would be unable to overcome the damage assessment (and burden of proof) set forth by the insurance company and therefore, unable to move the settlement offer higher.

That is precisely where the experience and skill of a reputable public claims adjuster and loss consultant comes into play. In our case, our team of former insurance company adjusters, building appraisers and contents estimators, would prepare and present the Cathedral’s claim to the insurance carrier for negotiation and advocate on their behalf.

Advice for Building Owners

The likelihood of a similar disaster whether caused by fire, wind damage, hurricane, tornado, water damage or other covered natural disaster may seem remote to most property owners (as I’m certain it did for the Catholic Diocese of Paris regarding Notre Dame). However, that should not stop you from putting a plan in place for an unlikely catastrophic occurrence.

Here’s what you can do to prepare.

1. Annually review your insurance policy coverages with your agent or broker, ensuring that insured values for your structure reflect the current re-build cost and that your contents coverage (business personal property) has been updated to reflect any new machinery, furniture, fixtures, and equipment (FF &E) you might have acquired since the previous policy was written. In addition, make sure you understand the extensions to coverage that you may have to include business losses or cyber losses incurred, etc., as well as any limitations to coverage, such as co-insurance provisions and deductibles, or exclusions to coverage;
2. It is recommended you keep an up to date inventory of machinery, FF & E, and other business personal property with serial numbers and photographs so working together we can more easily re-construct your inventory that has been damaged;
3. Be prepared to retain a restoration contractor of your own choice, not your insurance company’s choice to do immediate remediation of the property as it is your obligation as a policyholder to mitigate your damages; and
4. Pre-interview a public adjuster, such as the Sill Company which has significant nationwide experience in assisting businesses like yours in adjusting insurance loss claims to their property

And of course, if you find yourself facing a similar loss, the Sill Company is just a phone call away.

** [Author’s note: As you’ve been reading the news stories about the Notre Dame, you may have been surprised to read the Cathedral wasn’t insured as it is owned by the French state, which essentially self-insures the Cathedral and most of its contents (some artifacts were insured by a third party insurance company). However, you also may have learned there were two contracting firms involved in the renovation and restoration of the cathedral and it is quite possible the blaze may have been started/caused by those workmen. As such, the fire is still under what is known as a “cause and origin” (C & O) investigation. It has been further reported that AXA, a very large French-based international insurance company provides liability insurance for both contractors. In the event the C & O investigation concludes that one or both of the contractors did cause the blaze, we can all be on the lookout for what is known as a subrogation claim by France against the causing contractor(s)’ insurance carrier, “subrogation” meaning the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties.]