The COVID-19 pandemic is creating economic disruption across the state. “Shelter in place” orders issued from the Governor’s Office, as well as those from various cities and counties, have closed non-essential businesses such as restaurants and bars, collegiate and professional sporting venues, concert venues, and numerous retail establishments. The result has been an unprecedented loss of business revenue and a massive increase in unemployment. The economic stress to many businesses threatens their continued existence. One potential for relief may come in the form of business interruption insurance.
Business interruption insurance covers losses sustained from direct interruptions to a company’s operations. Common sources of disruptions to businesses are fires, hurricanes, tornadoes, or other natural disasters. Losses include such things as lost revenue from business operations or lost rental income. Coverage for a loss, if any, is determined by the specific terms of the relevant insurance policy. Careful review and analysis of a policy will allow for a determination of what coverages might, or might not, be available to a specific business.
While there are many variations, the typical business interruption policy limits coverage to actual loss of business income caused by the direct physical loss, damage, or destruction to property. The North Carolina Court of Appeals, analyzing a policy with similar language, has stated:
Under the language of the business interruption clause of the policy, coverage is provided only when a loss results from suspension of operations due to damage to, or destruction of, the business property by reason of a peril insured against. Harry’s Cadillac-Pontiac-GMC Truck Co., Inc. v. Motors Insurance Corporation, 126 N.C. App. 698 (1997).
In Harry’s, the Court concluded there was no coverage for business interruption caused by a snowstorm that closed access to the dealership for a week but did not result in physical damages to the dealership’s property related to the business closure.
The decision in Harry’s at first glance appears to rule out coverage for loss of business income arising from interruptions created by government mandates limiting crowd size, closing retail facilities, and requiring people to “shelter in place”. This is because, such events of closure might not appear to be accompanied by and, more importantly, caused by physical damage to business property.
There may, however, be a way to provide some coverage under a business interruption policy (or a property damage policy incorporating business interruption provisions). Arguably, physical damage to business property could be construed to include:
- lost income due to closure of a business resulting from contamination of the business property by the COVID-19 virus, at least until the contamination is remediated [In fact, last month a court action was filed in Louisiana by a New Orleans restaurant seeking coverage for the cost of cleaning their premises as a result of COVID-19 contamination];
- the cost of evacuating a business, and then reoccupying it, due to COVID-19 contamination and remediation; and
- the cost of COVID-19 contamination remediation itself.
Additionally, there is a possibility that Congress may act to expand coverages available under business interruption policies. Last month, several members of the House of Representatives called upon the CEOs of the four major insurance trade organizations to provide coverage for business closures due to COVID-19 under business interruption policies. This is unlikely to happen, however, as the premiums paid for pre-COVID-19 business interruption insurance policies would not cover the risk-of-loss to the insurer and were not part of the initial bargained for insurance coverage for which premiums were established.
Every business owner should review all its insurance policies to determine if there is an argument in favor of coverage for business losses under any, reasonable set of facts. The policies should be reviewed further for any potentially applicable exclusions of coverage as well. If questions regarding coverage arise, the business should seek assistance from its legal counsel and its insurance agent.