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Now that we are over two months into the economic shutdown it has become abundantly clear that insurance carriers are taking the position that business interruption losses arising out of the COVID-19 pandemic will likely not be covered.  This is evidenced not only by actual denial letters mailed out to policyholders, but also in interviews and press releases by various insurance carriers.  

Policyholders have even indicated that they have received preemptive denial letters from their insurance carriers even prior to submitting a claim. These denials are occurring in instances where the policy in question may, or may not, contain a virus and bacterial exclusion, a provision contained in many policies.  

An example of the insurance industries’ general position can be found on The Hartford Insurance – COVID-19 Resource Center: 

“most property insurance includes business interruption coverage, which often includes civil authority and dependent property coverage. This is generally designed to cover losses that result from direct physical loss or damage to property caused by hurricanes, fires, wind damage or theft and is not designed to apply in the case of a virus.”

At the crux of these denials is the insurance carriers’ position that the lost business income was not caused by a “direct physical loss” to the business property. The question then becomes, can a policyholder sustain a direct physical loss as a result of COVID-19 without experiencing visual structural damage?

Policyholders may find themselves in a position, at some point, of deciding whether they will have to litigate in order to receive satisfaction. Thus it is important for policyholders to consult with their legal counsel as to their specific course of action. Even if a policyholder does not plan on going mano a mano with their insurance carrier there are compelling reasons why the timely filing of a business interruption claim may be worthwhile. First, class action lawsuits are sure to arise from these denials, and such filings may well require its class action members to have timely submitted a business interruption claim. Therefore, a business that does not file a timely claim may find itself a spectator in these legal proceedings with no opportunity to participate in a financial recovery.   

The second reason for the timely filing of a claim relates to legislation that is currently being proposed at the federal and state level (including New York and New Jersey) that, if passed, could override the exclusion clauses contained in many existing insurance policies. Such legislation would serve to void the virus and bacterial exclusion of the policy, but may not provide provisions extending the time to file a claim.

Whatever course of action business owners take, it is recommended that they carefully read and understand the provision contained in their policies.     

If you would like additional information please contact your Gettry Marcus Advisor or Andrew Ross, the author of this article.