Authored by Lester Brown
Insurance coverage for coronavirus (COVID-19)-based business losses is a hot issue right now. Many commercial liability policies provide Business Interruption coverage when said interruption is “caused by certain perils.” Often, however, policies exclude coverage for “virus” contamination-based claims. Other policies restrict coverage for virus-based claims unless they are caused by other “Specified Causes of Loss.” There is a continuing issue being addressed by policyholder attorneys and the Perkins Coie Insurance group as to whether contamination of property by COVID-19 constitutes direct “physical loss or damage” and whether orders to close facilities because of the outbreak are covered.
It may take years before the courts provide answers to these critical issues regarding coverage. Certain state legislatures, and perhaps even the U.S. Congress, are not willing to wait for the courts to sort this out, however. Indeed, some states are now in the process of considering legislation to force insurance companies to pay for COVID-19-based business interruption losses. Currently, New Jersey is working on potentially requiring such coverage for companies with fewer than 100 employees. Congress is also considering relief. On March 18, the chairwoman of the House Small Business Committee, Nydia Velazquez, wrote the following to the top U.S. insurers:
“Business Interruption insurance is intended to protect businesses against income losses as a result of disruptions to their operations and recognizing income losses due to COVID-19 will help sustain America’s businesses through these turbulent times, keeping their doors open, and retain employees on the payroll.”
Chairwoman Velazquez’s letter also called for action: “We urge you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.”
It is currently unclear if such efforts will be successful, but policyholders who are suffering and whose insurance policies may have exclusions or other provisions that appear to bar coverage should make their needs known to their federal representatives and senators as well as their local and state officials, such as, in particular, their state insurance commissioners. In response to the argument that such action by the legislatures is unfair and violates the actual wording in the policies issued, New Jersey has included at least some relief for insurance companies by making an assessment on all insurance premiums on policies issued in that state. The funds will be used to help compensate insurers who provide such coverage where such relief arguably or actually may not reflect exclusions and other wording in their policies. This is a national emergency. In addition to the humanitarian needs of the country, it might be in the best interests of the insurance companies to provide such coverage rather than face the alternative of their policyholders going out of business.
Policyholders should also review policies for state-specific endorsements that may require coverage even if the printed form policy contains exclusions. Such endorsements may exist in these corporate policies already but may not be obvious to the typical policyholder. Review by coverage counsel with knowledge of such provisions may be particularly helpful here. Perkins Coie’s coverage team has discovered such an endorsement that appears to be required on Washington State–based policies. We are currently exploring the history and intent of such an endorsement and intend to report our findings soon.