Business interruption insurance is intended to cover income lost because ordinary operations are disrupted (typically by a natural disaster, but also because of government action in some cases). Has anything in recent memory been more disruptive to business operations than COVID-19?
Business interruption is an optional extra added on to casualty insurance (your commercial general liability policy, property damage coverage, etc.). If you do not know whether you have it, you should probably stop reading now, and go check. While you are checking, look to see whether you have endorsements or riders specifically covering communicable diseases.
Your business interruption policy may require physical loss or damage to your business and it may also exclude coverage for bacteria, viruses, and pandemics. These provisions are quite common and will probably lead to a carrier denying a business interruption claim unless you have coverage for communicable diseases. But we are hearing anecdotally that more and more companies are asserting business interruption claims even though they expect denials.
Why make a claim that is virtually certain to be denied? Almost all insurance policies require prompt notice of a claim to the insurance carrier – even before the full extent of the damage is known – so that the insurance carrier has the opportunity to investigate the claim before information becomes stale. If you start a claim sooner, you are more likely to satisfy notice requirements.
Insurance carriers require documentation (sometimes a whole lot of it). Lost profits can be particularly tricky to substantiate, and tying the loss to the external event is no easy thing either. Having started a claim earlier, the insured party is likely to learn sooner what information needs to be collected or preserved.
Notice and documentation are key parts of making a successful insurance claim, and that should not surprise anyone. But there is another compelling reason why we are hearing about increasing business interruption claims: the law may be changing.
Within weeks of Ohio’s disaster declaration, Ohio legislators introduced emergency legislation, House Bill (HB) 589, which could take effect upon its enactment into law. If HB 589 is enacted, Ohio law would require insurers to cover business interruptions arising from Ohio’s state of emergency declaration. The bill would nullify common policy limitations requiring physical loss or damage to the businesses’ premises or excluding losses caused by bacteria, viruses, or pandemics.
As currently written, HB 589 would benefit Ohio businesses with 100 or fewer employees who work not less than 25 hours per week. Such businesses have to be located in Ohio, and must have business interruption coverage in force whenever the statute becomes effective.
HB 589 has a long way to go to become law, and insurance companies are expected to mount a legal challenge to its constitutionality. Even so, several other state legislatures (New Jersey, Massachusetts, New York, Louisiana, Pennsylvania, and South Carolina) are considering similar legislation. We are in the early stages of the process and can expect to see more legislative efforts (and later court battles).
Given the uncertainty of state or federal legislation and likely lawsuits testing coverage limitations, it is reasonable to question whether limitations and exclusions are as iron-clad as they may seem. If you have business interruption insurance, you may want to review your coverage and speak to your agent or your legal counsel to understand how to make a claim and substantiate it.
This article is a follow-up to Ohio Legislature to Consider “Business Interruption” Bill” by Terence L. Fague of Coolidge Wall posted in COVID-19 Information Hub on Monday, April 13, 2020.
Contributing attorneys:
Daniel J. Gentry
Christopher R. Conard
Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail.
