Most commercial enterprises that operate in natural disaster-prone regions are familiar with business interruption insurance. That’s a policy designed to cover revenue losses resulting from the disaster.
It’s an optional part of commercial property coverage and protects a business owner or tenant who suffers loss of income because of suspension of operations and additional costs the company would not otherwise have incurred.
It also protects property owners from loss of rental income if a business must suspend operations.
A business pays extra for such coverage, which can also pay out if a company’s operations are slowed but not entirely stopped as a result of the disaster.
But what happens when that business interruption comes not from a storm or flood, but from a virus? Often, insurance companies will deny coverage in this situation; some law firms are helping clients dispute such denial of claims.
“Insurance companies say the insured must show that their physical premises have been damaged by the virus,” said Joel Rhine, who leads the Rhine Law Firm in Wilmington. “The insurers actually want the insured to present test results for the coronavirus, etc.
"We disagree and are filing suit based upon several theories, including one based upon a series of cases that indicate the loss of access to or use of a property constitutes ‘physical loss’ and triggers coverage.”
A typical business interruption policy includes a “civil authority” clause, according to Rhine. That provision, under “Additional Coverages,” states that a business can be reimbursed for losses resulting from “action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises ...”
Rhine said that businesses forced to close because of state-mandated COVID-19 restrictions could be seen as losing access to the insured premises.
Then there’s a “virus exclusion,” which some business interruption policies contain. One such provision, quoted by Rhine, states, “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease.”
This kind of exclusion became part of some business interruption policies after the SARS outbreak of 2003, according to Rhine, who said, “In 2006, insurance companies responded with this [amendment]. We are not bringing claims for businesses that have this exclusion.”
But the very fact that some policies contain this amendment suggests that other policies lacking the exception could be construed to cover virus-related business interruption, Rhine noted.
He said some law firms are bringing suit even for clients whose coverage includes the exclusion, but his firm is proceeding by “baby steps” in making claims against insurers, starting with the cases it feels have the best chance of being successful.
The owner of a company with business interruption insurance should take a few simple actions if the company wants to work with an attorney to dispute a claim denial, Rhine said.
First, the company should obtain a copy of its complete policy and review it to see whether there is a virus exclusion. Then, company officials should draft a statement describing the impact of the COVID-19 business interruption: a general statement of lost revenue and extra expenses.
Because businesses are hurting and this type of case will still be hard to win, Rhine said his firm – like many others – is taking cases on a contingency basis. That means the plaintiff does not pay the law firm unless the suit is successful.