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Business Owners’ Compelling Question: COVID 19 = Business Interruption…Is it Covered by Insurance??

March 18, 2020

This is a question all our clients have, and indeed a question by every business owner.  And it has massive implications.   We are working to develop the best insurance strategy for our clients.  It is fast-moving, and it needs to mature a bit before we make specific recommendations.  Those will be coming shortly.

Developing a Claim Strategy

Companies of all sorts, for-profit and not-for-profit, are and/or will be experiencing loss of revenue due to the virus-related closures and precautions.  They will also incur costs such as clean-up of facilities, and other “extra expenses.”  In the face of that, they will still need/want to pay their employees, also have other fixed costs, and will lose net income.  Owners want to know if all this is an insurable “business interruption.”

The Insurance Industry Position

The general insurer position is a literal interpretation of Business Interruption/Extra Expense policy terms: no coverage without direct physical loss to property (e.g. fire).   The same requirement applies to the other key coverage grant, Civil Authority.  Some policies also contain specific virus exclusions.  Another insurer argument will be that the loss of business suffered is due simply and solely to the virtual shut down of the global economy. 

The Legal Barrage from the Insureds’ Side

But armies of lawyers (including many insurance recovery specialists who we know and work with) are scrubbing case law and crafting legal arguments to get this covered.  We have received innumerable letters/blogs/alerts/articles from firms speculating on what the arguments would/could be based on.  There is case law already existing in business interruption/civil authority which open the door to contamination meeting the “direct physical loss” requirement. 

Hard to believe the first lawsuit on this specific pandemic has already been filed!  On March 16, the Oceana Grill, a seafood restaurant in New Orleans’ French Quarter, sued in a Louisiana state court to have the court declare coverage is owed by its insurer, Lloyds of London.

Given the sheer magnitude of this, the insurance industry will be devoting unlimited resources to defending against these legal theories. 


The Political and Regulatory Front

Politicians and regulators have started to chime in also.  New York, through its Department of Financial Services, has asked all insurers selling in the state to provide an explanation of coverage under its policies for Coronavirus-related claims.  In New Jersey, there is a draft bill in the legislature to override by law policy provisions relating to “COVID-19 losses.”

Government Relief Programs

Disaster relief bills are being announced on the federal and state levels.  They are not all finalized yet by any means.  Any financial payment under these plans will be off-sets to any insurance recovery, and will be an input to claim recommendations.

An Insurance Claim Strategy

This is an evolving situation with heavy consequences.  We are monitoring it on all fronts in order to determine the best approach for our clients.  We will advise our clients directly, and to others via this channel, what we recommend for action and timing with respect to filing claims.

What to do in the Meantime

In the meantime, stay aware of and document the following factors if, and as possible:

1. Any event or contract cancellation specifically based on the virus (as stated by the cancelling party, or as implied or obvious) – keep all that correspondence, and if verbal ask for it in writing.

2. Any drop in overall revenue that can be specifically attributed to the virus in some way. Keep documentation of news clippings, etc. about business reductions in your area, industry or niche.

3.  Plan to be able to show revenue trends over the years – for example, you may find revenue increased 15% in each of the last three years, now suddenly flat, or down.

4.  Document any person who has been in your building, office, facility, etc. who now has or had the virus.  That would help show the building was contaminated, therefore physically damaged.

5. In general be aware and document the existence and cause of any business reduction you suffer.

This information will be needed for any claim filed.

Stand by.

Other Kinds of Insurance Claims

Business interruption is the most compelling and immediate, but other claims could result.  Please contact us if you have an issue involving the following General Liability, Workers Compensation, Directors & Officers Liability, Employment Practices Liability, or any another policy type.

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Mar 18, 2020

Licata Risk Licata Risk & Insurance Advisors, Inc.
137 South Street, Second Floor
Boston, MA 02111-2848
617-451-2140     [email protected]
LicataRisk Advisors is an independent risk management and insurance consulting firm. We are not brokers and we do not sell insurance. We are not connected to any insurance company or product in any way and do not receive commissions. This is an important difference as you will have an expert on your side who is only committed to you.

Licata Risk is not a law firm and does not practice law. General advice and contract input by the consultants, including those who are attorneys, is to provide insight into the risk and insurance aspects. Your attorney should be the final authority on any legal matter.