COVID Closures Lead to Insurance Claims

Businesses suffering closures under state orders issued in response to the coronavirus pandemic have begun a wave of claims under business interruption insurance policies, but insurance companies are pushing back.

Business interruption insurance is not included in every business’s coverage package.  When purchased, it typically covers losses not handled by hazard insurance.  For example, if a fire at a retail establishment forces a closure while repairs are undertaken, hazard insurance will handle the costs of repairs and replacements needed.  Business interruption insurance adds to this by reimbursing for profits lost during the shut-down period.

Because COVID-related closures are ongoing, most of the current claims are being filed just to meet policy notice requirements for now.  Eventually, though, we expect to see large numbers of cases litigating whether coverage applies, and where it does, the amount recoverable under the coverage.

For businesses in Virginia, there are three key points to consider:

• Does your policy provide coverage? Insurance companies typically take the position that pandemic closures are not within the scope of policy provisions specifying what coverage is afforded.  But every company has its own policy forms, and so, there is no one rule for these policies; whether coverage is available will vary from one policy to the next.
• Does your policy exclude coverage? Many insurance companies added language explicitly excluding pandemic-generated harm from coverage after the SARS outbreak in 2003 lead to a flood of claims in Asia.  But again, policy forms differ from insurer to insurer, and not all forms contain this exclusion.
• What are your claim notice requirements? Even if you doubt whether coverage will be available, filing a claim is smart, if only to assure that you are as timely as possible in meeting policy notice conditions.  Virginia is among the most rigid states in its backing of insurance companies when notice is not timely sent.  This definitely creates a situation where a policyholder may want to “shoot first and ask questions later”  — that is, send the notice now and work with your lawyer on parsing your policy language at your leisure.

When evaluating these points, be sure to talk to your lawyer.  Bear in mind that insurance agents are typically steeped in information provided by the insurance companies.  As a result, many contacts to agents will result in reflexive responses that discourage the filing of claims.  As a result, advice from your agent may biased and incorrect.

Given the extraordinary losses involved in current business closures, it is well worth the modest charge involved with having your lawyer help you send claim notices now, and then review your policy language in detail.  It could make the difference between survival and bankruptcy.

Marrs & Henry remains fully open and available to you during our current, difficult time.  If you need help, there’s no need to wait.  We can meet with you in person at our offices, we can come to you, we can talk by telephone, we can be reached by e-mail, and we’re also available via video teleconference.