Many businesses have been shut down due to the rapid spread of COVID-19 and unfortunately many policies do not cover business interruption losses. This is in large part due to existing communicable disease and virus-related policy exclusions. The most common reason for this denial of business interruption coverage is not just due to common virus exclusions but also due to the difficulty in triggering a direct physical loss of or damage to property. Recently, lawsuits have been filed around the country, which pled a direct physical loss by alleging damage to the insured’s property, since the virus physically infected and stayed on surfaces within the building or premises of the insured. Plaintiffs have been attempting to argue the time period the coronavirus can remain on a surface within a building or suite as technical physical damage to property. As a result, in many of the complaints filed so far, plaintiffs are attempting to trigger the civil authority coverage, usually 30 days, as their attorneys argue the policyholders are entitled to business interruption coverage, despite the virus exclusion in most polices. The “direct physical loss due to the presence of the virus on surfaces for an extended period of time” argument may actually gain traction for healthcare providers who were forced to cease all non-emergent and elective surgeries, since it stands to reason healthcare provider locations faced a greater risk of exposure to COVID-19 in their physical locations than other businesses. Nevertheless, coverage will remain difficult to trigger where the policy exclusion is clear, which most seem to be.
Other emerging arguments for business interruption coverage have recently taken insurers to task for denial of coverage without a proper and full investigation of the subject property location before delivering its prompt denial of coverage. In one recent Illinois complaint, a policyholder argued a reasonable investigation was warranted before a determination could be made that the business shutdown was conclusively due to the coronavirus. As a result of the quick denial, the complaint included a claim for bad faith against the insurer. In reality, most business policyholders believe they can argue that they had a reasonable expectation of business interruptions coverage and can trigger the civil authority coverage. However, as we have seen this past month, triggering the business interruption coverage under a policy will not be easy to do. The exclusions tend to be short, clear and most likely enforceable.
This coverage dilemma has caught the eye of legislators. On April 1, 2020, a bill was filed with the Massachusetts state senate requiring insurance companies to provide business interruption insurance to policyholders who have been shut down due to the coronavirus. The bill seeks to reimburse insurance companies who pay claims for business interruption. The bill only applies to companies with 150 or fewer full-time employees. Over time, the state of Massachusetts would recoup what has been paid out by placing a surcharge on Massachusetts domiciled insurance companies. The end result of this bill, if passed, would be a small increase in insurance premiums over time. New Jersey has a similar bill pending as well. While this type of creative problem solving is taking place in some of the hardest hit states, the insurance industry has already tightened up policy language, so it will be crystal clear going forward so that business interruption coverage will be more difficult than ever to trigger as a result of a COVID-19 workforce shutdown or civil authority stay in place order.
The novel arguments outlined above have been considered by the industry and new exclusions will soon emerge. New proposed policy exclusion language, once finalized, may read something close to the following language:
This insurance does not apply to any liability, loss, damage, cost or expense of whatsoever nature directly or indirectly caused by, arising out of, resulting from or in connection with:
a. any actual, alleged, or threat of infectious disease, including but not limited to diseases arising out of coronaviruses, regardless of any other cause or event contributing concurrently or in any other sequence to the loss;
b. any action taken or failure to take action in controlling, preventing, suppressing or in any way responding to such actual, alleged or threat of infectious disease.
The above exclusion language could easily be viewed as clear, couched in plain English and not difficult to understand. Should the COVID-19 spike again this coming winter, updated exclusions like the one above may be part of the renewal process. The renewal process presents a good time to review coverages and exclusions with your insurance professionals, this year will be no different.