What to Do When Your Insurer Denies Your Business Interruption Claim

A. Benefits vary by policy and very often by industry. For example, hotels and health care organizations often have special provisions in their policies for pandemics. Here are some of the losses you can claim. Working with your business advisors, the attorneys at Insurance Litigation Group may find others:

• Lost business income
• Employee salaries
• Lease payments or, if a property owner, lost rental income
• Loan payments
• Expenses of operating from a temporary location and advertising announcing the move location.
• Inventory losses
• Supplier payments
• Taxes and utilities

A. Business interruption coverage is may be included in your commercial property insurance policy. The section is intended to provide your company with money to cover lost profits and to pay for costs such as rent, loan repayments, employee wages, and taxes.

Your company may also have contingent business interruption coverage. It ensures you against financial losses resulting from disruptions to customers or suppliers. That underlying cause of the damage must be of a type covered with respect to your own property. For example, a severe storm knocks down trees and power lines, making the roads to your business inaccessible to your customers and to delivery companies that provide essential supplies.

As most policies are written, a claim must be for an event such as fire or windstorm that results in physical damage. The damage could also be the result of the event. For example, a windstorm might knock out power for several days, causing the food in a restaurant’s refrigerators and freezers to spoil.

You might think qualifications for business interruption benefits would exclude claims for losses due to the coronavirus pandemic. Maybe, and insurers have gone further to insert what is called “viral exclusion” clauses. They expressly rule out coverage for losses due to widespread diseases such as a pandemic.

Why? You may remember the SARS outbreak in 2002. It started in China, spread across Asia, and reached the United States in March 2003. If this story sounds familiar, you should also know that insurers paid millions of dollars in business interruption claims because of the virus. In lawsuits, some courts ignored the physical damage requirement. As a result, insurers updated their policies with the viral exclusion clause so that courts would be less likely to give policyholders the benefit of the doubt.

Today, the National Association of Insurance Commissioners seems to favor insurers. In a statement, it said, “Business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19 and therefore include exclusions for that risk.”

Not everyone agrees, according to a Washington Post article, which quotes J. Robert Hunter, a former insurance commissioner from Texas. He says that some policies do not specifically exclude coverage in case of a virus or pandemic. “The courts will have to decide,” he told the Post.

Thus, despite the stronger language, there is still room for courts to interpret your policy in your favor. While the word “virus” may appear in the policy, it is often lumped in with other exclusions such as pollutants and contaminants. Is a virus a contaminant? Given the extreme measures required to disinfect a property, it could be argued that COVID-19 fits the definition.

Think back again to SARS. Judges agreed then with policyholders’ attorneys that government-ordered closures in response to the virus met the criteria for physical damage. Whether the damage has occurred will depend on a close examination of the facts of your case. The courts may be persuaded again to rule in policyholders’ favor.

A. The first step will hopefully be the easiest: calling your insurance company, your insurance agent, or submitting an online form. State that you are making a claim because of recent events and the losses you have incurred. It is OK to say that you are not sure of the details yet. Don’t tarry. Many policies have deadlines that require a claim to be filed promptly after a loss.

Additionally, the science regarding the virus is evolving, so you will have limited time to seek policy benefits. Making a claim is the first step to protecting your rights.

We recommend that you obtain the following documents:

• A copy of your policy with all attachments and endorsements
• Any claim correspondence from your insurance company
• Your denial letter, if you have received

For copies of the documents, contact your insurance company or insurance agent. The team of lawyers at the Insurance Litigation Group can assist you with questions or concerns about the claim process.

A. Be pleasantly surprised if your insurance company immediately writes a check. If there’s an exclusion clause for viruses and other microorganisms, your carrier will likely argue that you do not qualify for benefits. An insurer may also claim in a separate suit for declaratory relief that no insurable event occurred that caused direct physical damage. And a judge may rule that a government order, not COVID-19, caused the business interruption.

The good news is that because the government responses to the virus have been uneven, the insurers’ arguments are not clear-cut. Many states, cities, and counties issued stay-at-home, shelter-in-place orders. Many others did not. These edicts affected many, but not all businesses; some were declared essential and allowed to operate. Others were not. Some buildings closed while others remained fully or partially open.

One result has been that some businesses have suffered even when they continued operating because the companies that they relied on to drive their revenue were closed. Think of it this way: You operate a beachfront hotel in a tourist destination city. Your doors stay open because you’ve been classified as an essential business. However, the beach, nearby restaurants and nightclubs, sports venues, cultural attractions, and other places that would attract tourists have been ordered shuttered.

In essence, civil authorities have crippled your hotel business, causing a loss of income that will extend well beyond the time they have lifted their orders. It will be months, maybe years before you will see guests in the same large numbers as before.

You may not own or operate a hotel, but your situation is pretty much the same: You can accept a rejection of your claim or talk to an Insurance Litigation Group attorney about whether to seek a court judgment. They have experience dealing with insurance companies and possess deep knowledge of court decisions that could affect your claim.