Most people tend to be confused as to the type of event business interruption insurance covers. There actually is a distinction between business interruption and civil authority insurance.
- Generally business interruption insurance 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.
- Civil authority coverage, on the other hand, generally allows a business to recover losses when a civil authority issues an order that closes a business or prevents it from normal operations.
Whether you believe your business interruption or civil authority coverage protects your business, it is highly recommended that a business submit claims expeditiously to avoid a basis for denial.
Currently, many insurers are denying coverage on COVID-19 claims either because there has been no physical damage to the property or because the policy expressly excludes coverage for viral contamination.
Certain members of Congress have asked insurers to cover losses due to COVID-19 under business interruption policies and some state legislators have proposed legislation that would require insurers to provide some level of coverage for losses stemming from COVID-19. These requests have not yet resonated with insurers. Generally, insurers take the position that the policies expressly exclude communicable diseases and any requirement to cover such losses in all likelihood would be deemed unconstitutional.
At this point, business owners need to review their policies to determine if they have coverage for losses that stem from COVID-19. In some instances, restaurants or hospitality businesses may have policies that address losses caused by viruses. Moreover, some businesses may have event cancellation coverage available to them.
Already, some businesses have filed suits alleging that the closure of their businesses by civil authorities due to COVID-19 constitutes a physical damage or loss that is either expressly covered by the policy or is not expressly excluded by the policy. Businesses are arguing that there is coverage by virtue of the fact that there is no express exclusion.
Recently, a complaint was filed in the federal district court in the Southern District of Texas alleging that a policy with “Pandemic Event Endorsement” covers COVID-19 as it already covers other diseases such as “Severe Acute Respiratory Syndrome-associated Coronavirus (SARs-CoV) disease” and its mutations and variants. Insurers that have issued these endorsements have denied COVID-19 coverage alleging it is not a mutation or variant of SARs-CoV disease. Other lawsuits have alleged that because the policies do not exclude forced closures caused by viruses, the losses caused by COVID-19 are covered.
In conclusion, it is important for businesses to review their insurance policies to determine whether viral contaminations or pandemics are covered. If so, they are in luck. That said, an insurance policy is a contract and such coverage will depend upon the actual language of the policy and the specific circumstances giving rise to the claim.
See our COVID-19 Quick Reference page for additional articles.
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