Do You Have Insurance for Lost Business Due to COVID-19?
By: James White
Unless you are extraordinarily fortunate, your business will surely see a drop in revenue due to the economic slowdown caused by the virus. Do you have insurance coverage for this? Past world events such as the Ebola outbreak, 9/11 and hurricanes can provide some guidance. Rest assured, however, that insurance companies will be inundated with claims after the pandemic has ended. Do you have insurance that allows you to make a claim based on a decline in your business? The lawyers at BrownWinick can walk you through your options in detail, but here are some high-level questions to consider.
Business Interruption Insurance. Admittedly, this is not common coverage for a business, but even for those of you with this type of policy, you don’t necessarily have coverage for losses related to the virus. Indeed, a number of insurance companies are on record informing Congress that economic slowdown and government-forced business closures do not fall within the scope of this type of policy – but that doesn’t mean the insurance companies are correct. As with every insurance policy, the devil is in the details of defined coverages, exclusions and losses. For example, some policies identify (or exclude) specific causes of covered losses, while others are “all risk” policies where specific bases of loss (or exclusions) are not identified. Some policies require a “physical loss” to property or other types of tangible assets. This begs the question whether the spread of the virus on equipment which must be taken out of service for cleaning and sterilization constitutes a “physical loss.” Is there coverage for losses resulting from government-ordered shutdowns, sometimes referred to as “civil authority” coverage? And if there is coverage under any of these circumstances, what are the defined reimbursable losses? Lost profits or lost revenues? If so, how are those losses measured and what proof do you have you would have sustained those losses? Do you have a duty to mitigate and, as we transition into the next type of coverage, do you have other coverages that should take priority?
Some policies may cover losses resulting from breakdowns in supply-chain, most commonly downstream supply-chain interruption. So while your business may otherwise be operating on all cylinders during the virus closings, if any of your suppliers are adversely affected, you may not be able to operate. A related, although less frequent, coverage issue involves upstream interruptions that could cause you loss, i.e., customers shutting down (e.g., you distribute food products to bars and restaurants).
D & O Coverage. A small number of lawsuits have already been filed against company directors and officers alleging the company did not properly prepare for the virus in advance or did not sufficiently react to its onset. It remains to be seen whether these claims will succeed. For our immediate purposes, the questions are (1) whether a D&O Policy will provide coverage for the defense and (2) possible damages that could be awarded. There will likely be a plethora of lawsuits alleging various forms of mismanagement in a company’s handling of the virus, costing the company profits/dividends, or causing a decline in the company’s stock value.
Commercial General Liability (CGL) Policies. CGL Insurance typically covers claims against the company for bodily injury or property damage. Is there coverage if an employee, customer, or other person claims to have become infected while on your premises? Was the company negligent by failing to mandate proper social distancing or not properly sanitizing the premises? Will this constitute “bodily injury?” Policy exclusions often include “bacteria” and “mold.” Would the virus fall within one of those exclusions?
Event Cancellation Insurance. This is not a common policy for most businesses, but would appear to be a no-brainer to apply to cancellations resulting from the virus. Again, however, the devil is in the detail of the language. Not all policies may cover government-mandated closures (as opposed to weather-related cancellations, for example), including mandates restricting gatherings to no more than 50 or 10 people, as was the case in Iowa. Is your event cancelled because of your company’s “inability” to hold the event (common language in one of these policies), is it the result of one of your suppliers’ or your customer’s inability to perform, is it because of illness, government action, business interruption, or something else? Consider also what constitutes an “event” for which you may have coverage.
Workers’ Compensation. Although the federal government has enacted a number of pandemic-related laws to ease the burdens on both employees and employers, consider whether your workers’ compensation coverage would apply if an employee claims to have caught the virus at work. Industries such as health care and grocery/convenience stores may be especially subject to these claims.
Conclusion. As you can see, COVID-19 will result in a wide range of issues related to insurance and business loss. Businesses should begin by reviewing their insurance policies now to determine whether they have any policies that could potentially cover their losses. BrownWinick attorneys can help analyze those policies to advise on potential/probable outcomes and to maximize insurance coverage for losses. If you have questions on these issues, please contact Mike Dee or James White, the co-chairs of BrownWinick’s Litigation Practice Group.