Risk Management

Business Interruption Insurance for COVID-19 Disruptions (Updated Frequently)

Jeff Hirsch
Updated: Sep 27, 2024

TL:DR

Key Takeaways

Head of Claims

This post is being updated in real-time as announcements are made from federal and state agencies. You can click here to skip to the updates section. To bookmark this page hit ctrl + D or cmd + D

Given all that’s happening in the world right now (and as we enter a world of WFH for the foreseeable future), we wanted to continue to expand our library of blog posts that can provide all the guidance we can as it relates to your insurance policies.

When your business insures its “property,” many policies include a loss of business income or business interruption (“BI”) feature. The standard (in fact 99.9%) BI coverage only applies if your business is unable to operate as a result of some sort of physical damage (think fire or structural damage). If your business is forced to close temporarily after a fire or other building damage, you can claim your loss of net income.

Some property damage policies include a coverage feature (“special coverage”) for “civil authority” interruptions. If the government requires you to shut, can you seek insurance coverage for your loss of net income under your property policy? Unfortunately, the answer is probably not.

Traditionally, civil authority coverage is meant to apply when your neighbor’s structure suffers physical damage rendering your premises unsafe to occupy. This is the exception to the rule that business interruption only applies to loss of business income after you have sustained physical damage. But, even here, there has to be physical damage – just not to your premises. Same is generally true for policies that include a special coverage for what is sometimes called “suspension of operations” coverage. There are some less common coverages tied to supply chain claims, but those would apply if, for example, a key component is manufactured somewhere that cannot ship product due to a government ordered shutdown.

Note, however, that we said “traditionally.” While no insurer is likely to amend their policies to allow for Covid-19 related business interruption coverage, we’ve seen insurance outcomes mandated by governments and courts under extraordinary circumstances. For example, terrorism coverage (as we now understand it) didn’t exist prior to 9/11. The National Flood Insurance Program was created in response to national emergencies. We can’t predict with any certainty that the government or courts will step in and retroactively amend private insurance policies.

So, the question is whether to submit a notice of claim for business interruption anyway? If you are a client in the hospitality industry (bars, restaurants, hotels, travel, and related), recent local government announcements mandating no in-restaurant service (in NYC and LA, for example), or CDC announcements mandating no gatherings of more than 50 people (or 10?), this will no doubt significantly impact your business. As a result, we are suggesting that our clients consider notifying insurers of these claims. Will coverage be created for this national emergency by government mandate or judicial fiat? Who can predict? But you can’t recover anything if you never submit notice to your insurance carrier. You can get the reporting process started here.

As of writing this post, the NYDFS is requiring that insurance carriers report on the state of business interruption claims and policies. It may well be the case that NY intends to offer guidance on the subject. We will keep everyone updated.

Let us know if we can help or if you want to discuss, And as always, please reach out to our team with any questions.

Stay safe and sane out there.

Live Updates

UPDATE 06/24/2020

Unfortunately there are no updates from legislators who have proposed bills to retroactively cover COVID losses. However, there may be some more immediate relief for those business owner not only affected by COVID closures but by vandalism during the past month’s protests.

If your business has been damaged or delayed or limited when reopening due to damage caused by the protests, there is “physical damage” that can lead to business interruption and property cover under your property policy. Most policies have coverage for civil commotion and riots that provides cover for these scenarios. Furthermore, under the doctrine of concurrent causation, coverage is afforded under circumstances where 2 issues have given rise to a claim and 1 is covered while 1 is not. Some policies may not have civil commotion or riot coverage or may have an anti-concurrent causation clause so it’s important to talk to your broker and understand your recovery rights under your specific policy.

UPDATE 05/22/2020

As of this Monday, May 18th, Michigan joined the 7 other states that have introduced legislation that would retroactively expand business interruption coverage due to cover losses due to the Coronavirus outbreak. None of these bills have made it through the legislative process, however.

California provided this bulletin late last week which warned Insurers that they must abide by the guidelines of the Unfair Claims Practices Act. Given the limited capacity of courthouses in the state, it appears that some insurers have been offering unfairly low settlements, knowing that claimants have limited recourse and heavy delays should they choose to fight it out in court. We haven’t seen much of this at Founder Shield yet because we only work with top rated carriers but our claims advocacy team is now extra vigilant.

UPDATE 05/07/2020

…and now we play the waiting game.

Now that many wheels are in motion in semi-functional courthouses and legislatures around the country, we can only wait and see what the legal and regulatory process yields. We’ll be sure to update you as frequently as possible, but we may be in for a bit of radio silence as legal and legislative debates don’t resolve themselves overnight.

Several carriers have continued to expand their late payment forgiveness periods through mid-June (Travelers, for example), and we expect this to continue at a minimum in jurisdictions that remain under shelter-in-place orders.

UPDATE 4/23/2020

Lawsuits: In legal updates, Travelers has fired back at a policyholder that sued the insurance company seeking BI coverage after being denied. The policy holder asserted in the original suit that “presence of the coronavirus on or around property constituted physical damage under the civil authority section of their policies triggering coverage. ” The Travelers’ motion for declaratory judgment referenced the virus exclusion and states: “Even without reference to their exclusions, the Policies require ‘direct physical loss or damage’ to property, and the presence or suspected presence of a virus does not constitute the requisite ‘direct physical loss or damage.’”

Regulatory: As of today, 21 states have now issued guidance on how COVID-19 issues implicate business interruption insurance. There have not been any other states beyond those listed in our 4/10 update that have introduced legislation that would retroactively apply BI coverage to COVID-19 Claims.

Vacancy Issues: As buildings & offices continue to sit vacant, an interesting coverage issue has become more relevant to businesses than ever in the past. When a property is vacant, insurers generally look at the risk exposure differently. Standard property policies usually exclude certain coverage when a property has been vacant for greater than 60 days under the assumption that there is either construction going on or a lack of maintenance and upkeep (causing greater risk of property damage). Of course under present circumstances and shelter-in-place orders, many normal offices and stores could be considered “vacant” and cost policyholders coverage.

The Hartford is the first carrier we’ve seen to address this issue. We received a statement that reads in relevant part: “In recognition of the extraordinary circumstances arising from the COVID-19 crisis, The Hartford will not consider property to be vacant if the property became unoccupied after an order was issued that closes any business in the applicable state; provided the building was not vacant, as defined in the policy, before such order was issued.”

It’s an important nuance to property coverage that has not (thankfully) seen its day in court in a COVID-driven world but we’ll continue to keep an eye on it.

UPDATE 4/14/2020**

As we predicted very near the onset of businesses being shuttered due to “stay-at-home” and similar governmental orders aimed at reducing the reach of COVID-19, commercial property insurers have received a mountain of business interruption/loss of business income claims filings. Many of the filings have been “notice of potential claims” filed in order to get a place early in line with claims adjusters. Others are fully documented claims.

In response, insurers have had to navigate through policies that were not written with CV19 in mind. The generic property policies with loss of business income provisions include some limitations that insurers have hung their “no coverage” hats on. Coverage usually requires actual physical damage to the insured’s property or fear of such damage because of conditions at adjacent property, like a fire. Many of the standard policies also specifically exclude “virus” related claims.

We have been tracking the efforts on the legislative level to try to get insurers to bend, and check here for a good way to track developments. South Carolina has joined the ranks of the 6 other states we mentioned last week that introduced legislation to retroactively cover business interruption losses due to COVID-19. And on Friday, our ears pricked up when Mr. Trump, during his daily briefing, said this:

With as many as 88% of local businesses in the health and beauty, bars & lounges and arts & entertainment industries forced to close – as of the first week of April, the number of “business interruption” claims filed and to-be-filed is staggering. And, at least a dozen lawsuits challenging coverage denials have already been filed.

One of the most recent lawsuits is a proposed class action lawsuit filed in Florida on Thursday April 9, 2020. It’s a “race to the courthouse” attempt to secure priority in filing for the claims. If the class gets certified (which is doubtful here) then plaintiffs’ counsel will reap the windfall of a piece of all of the settlements, plus a separate attorney fee award typical in class actions. How much relief would actually get to the plaintiffs would remain to be seen. But if prior class actions are any guide, the businesses themselves would only receive a small percentage.

Although at least a dozen other coverage suits for CV19 business interruption claims have been filed, but this is the first in Southern Florida, where hundreds of businesses have had to close, many of them
serving Florida’s tourism industry. The insurers who were sued in Florida are several of the largest and well-known London syndicates who insure businesses in the US: Catlin, Beazley, Brit and Berkeley.

The complaint refers to Dade County Mayor and Florida Governor orders restricting restaurant operations. Plaintiffs claim this triggers the “civil authority” part of the standard business interruption policy. Plaintiffs anticipate that these claims will be denied and seeks a declaration by the court that the policy applies to “suspension, curtailment and interruption of business operations resulting from measures put into place by civil authorities.”

While the Florida case may fail as a class action on a number of grounds – for example, the plaintiff is asking the court to rule on defendants’ “anticipatory breach of contract” meaning that the plaintiff thinks that the court shouldn’t wait until the claims actually get denied – courts are usually reluctant to take on cases like this before a breach occurs.

We will follow this case (and other coverage actions) closely and continue to update on all legislative and judicial action related to COVID-19 business insurance coverage.

UPDATE 4/10/2020

Three more states have joined the ranks have now introduced legislation that would retroactively expand business interruption coverage due to cover losses due to the Coronavirus outbreak. The full list of states (newest to oldest) that have introduced legislation includes:

None of these bills have made it fully through the legislative process yet but we’ll continue to keep a close eye on these developments.

UPDATE 4/6/2020

New York’s Governor Cuomo signed and executive order late last week extending the premium payment relief guidelines to 3rd party premium financing companies. These companies have been instructed to hold back on sending nonpayment/cancellation notices and to waive late fees for an extended 60 days. Other states that have followed suit include:

Louisiana
Mississippi
North Carolina
Washington
Oregon

Note that the New York bulletin directs the insured to provide “a statement that you swear or affirm in writing under penalty of perjury that you are experiencing financial hardship as a result of the COVID-19 pandemic, which the insurer or premium finance agency, as applicable, shall accept as satisfactory proof. Such statement is not required to be notarized.” We’ll keep an eye on this development as well.

UPDATE 4/1/2020

Law firm Sidley has created a compendium of state department of insurance responses related to business interruption, health insurance, and more. The post confirms that almost every state has implemented premium payment relief measures for some period of time through May or June. They are updating frequently and this is a great resource to stay informed on your state’s responses to the pandemic.

UPDATE 3/30/2020:

Law firm Gfeller Laurie has released a memo this morning indicating that at least 4 lawsuits have commenced against insurers arguing the applicability of business interruption and civil authority coverage under standard property policies. These cases are in very early stages and only time will tell how courts weigh in.

The memo also notes that Ohio and Massachusetts have joined New Jersey and “proposed Bills that would retroactively expand business interruption insurance policies to cover insureds’ losses attributable to the outbreak of COVID-19, regardless of the policies’ express terms.” None of these bills have made it through a vote at this time, however.

UPDATE 3/29/2020:

We initially wrote about how NYDFS issued a bulletin ordering insurance carriers to provide guidance to their customers on the applicability of business interruption and civil authority insuring clauses under current circumstances. CNA posted the company’s statement here. As expected, it highlights the need for “physical damage” to trigger these clauses, but encourages insureds to submit and log potential claims with the company.

Travelers has joined the ranks of Hartford, CNA, and others in providing billing relief until May 15th.

UPDATE 3/27/2020:

Washington state has now joined the ranks of California, New York, and many others mandating policy premium payment and cancellation forgiveness until May 9th. Quick tip: to find up-to-date info from your state department of insurance related to COVID-19 issues, simply google “[state] DOI COVID”…almost every state has set up a page where they’re aggregating all bulletins and guidance documents related to compliance and insurance during this time.

UPDATE 3/25/2020:

There are many legal & insurance scholars weighing in on the applicability of business interruption coverage applying to COVID-19 losses and arguing that confirmed cases within one’s building may be enough to count as “physical damage.” There is commonly a Virus Exclusion on many standard policy forms, but regardless, many expect state and regulatory intervention to force coverage even in spite of that exclusion.

In late February 2020, ISO, an insurance advisory organization that created the “gold standard” of property and liability coverage forms, released 2 new endorsements that would grant coverage for COVID-19 related business interruption losses. It’s unlikely that carriers will adopt these endorsements but time will tell.

Many of the carriers we work with (Hartford and CNA, for example), have already implemented the guidelines requested by NYDFS and other state insurance regulators: payment suspensions & postponements and waiver of late fees until at least June 1st and no cancellations for nonpayment of policy premiums. At present, we’re seeing carriers acknowledge receipt of claims with softer language like “at the present time it appears coverage may be excluded by the policy.” It seems everyone knows that some regulatory intervention may be coming…

EPL: CA has suspended the 60-day notice requirement imposed by the WARN Act. As many companies begin to conduct larger and larger layoffs, we’re putting more and more carriers on notice about potential claims related to Employment Practices lawsuits (wrongful terminations). If you have to go through the awful process of downsizing the team, talk to us and we’ll make sure you go through the right process on the insurance side.

UPDATE 3/22/2020:

We’ve discovered that on March 18, 2020, the California Department of Insurance issued a Notice requesting all insurance companies provide their policyholders with at least a 60-day grace period to pay their premiums. California Insurance updates related to Coronavirus can be found here.

In New York, the governor announced in a press conference on Friday that there will be a 90-day suspension of mortgage payments and foreclosures for commercial and residential mortgages. There has been no comment about a rent freeze, however, which could certainly help out business owners in the battle for survival, particularly in NYC. We’ll keep an eye on the situation.

New York DFS also sent a bulletin out to all licensed producers (us) announcing that it has instructed insurance companies to offer “payment accommodations, such as allowing consumers to defer payments at no cost, extending payment due dates, or waiving late or reinstatement fees,” although it has not followed CA and some other states with a hard and fast 60-day rule.

UPDATE 3/19/2020:

The state of New Jersey has introduced legislation that will actually force insurers to cover business interruption claims expressly excluded or uncovered. The New York Department of Financial Services requirement for carriers to provide an explanation of benefits was due yesterday so we’ll keep an eye out for any progress in New York. Alaska posted this bulletin as well prohibiting carriers from cancelling policies for nonpayment until June 1st at the earliest, protecting insureds who can’t pay their premium during this crisis.

One thing is certain: legislators and regulators are acutely aware of the shortcomings of insurance policies for this novel situation and are working to do something about it.