COVID-19 Insurance Coverage: Tips for Submitting Business Interruption Claims

The coronavirus pandemic that causes COVID-19 is touching all aspects of life. We are all constantly checking the news, watching the market, and reading about what effects the pandemic could have on the economy. For businesses, both large and small, times may be difficult and uncertain. As many state and local governments issue “stay home” orders or mandate temporary business closures, companies are experiencing losses in many forms.

Insurance policies providing business interruption coverage (also referred to as business income coverage) could be an asset in these circumstances. We wrote about business interruption coverage generally in a prior alert that you can read here.

Here, we just want to remind you that it is impossible to recover under an insurance policy if you do not first file a claim. Submitting a notice of claim to an insurance carrier does not require a calculation of losses. One policy that we read recently summed it up perfectly where a cover page read: All claims regardless of severity or location should be reported. We agree.

Here are some suggestions for giving notice of a claim:

• Keep it simple. The notice letter does not need to include details about prior financials, estimated losses, or other information that you have not had time to fully analyze and vet.
• Reference the actual cause of the losses. We have heard that some businesses are reporting claims and describing the cause of the interruption and resulting losses as “coronavirus” or “COVID-19 pandemic.” If the actual cause of your losses is a government order requiring your business to shut down or limit operations, say that. In most instances, the government-ordered shutdown likely is the actual cause of your losses.
• Keep your broker in the loop.

Expect that the insurance company will respond with a reservation of rights letter indicating the policy only provides coverage for losses caused by a “direct physical loss or property damage.” Don’t let that discourage you from pursuing recovery for your losses under the policy. Press onward. Some things to keep in mind regarding the “direct physical loss” requirement:

• Courts have not yet analyzed this requirement in the context of a government-ordered shutdown due to a pandemic. 
• It is not a defined term and is subject to an ambiguity argument, which favors insureds.
• Many courts have interpreted the “direct physical loss” language broadly. For example, one court found the requirement satisfied where a company’s property showed no observable signs of damage but it could not be used for its intended purpose due to lead contamination. The property could be used for other valuable purposes. Still, the court found the reduction of value to be a “direct physical loss” to the property. Other courts have embraced the “loss of intended use” interpretation of “direct physical loss.”
• This is a new issue. Even if your jurisdiction does not have favorable law regarding the “direct physical loss” requirement right now, a judge or jury could still interpret the requirement to find coverage.
• Lawsuits are already being filed seeking a court determination that property insurance policies provide coverage for losses related to government-ordered shutdowns. We have seen restaurants in Louisiana and California file lawsuits against their insurers in the past two weeks.

Finally, remember that insurance companies will assert generally that many exclusions could apply to preclude coverage. Read the exclusion language carefully and push back if the actual language does not seem to fit the facts of your claim. For example, an insurance carrier may assert that an exclusion for viruses precludes coverage to a claim related to losses caused by a government shutdown order. In such circumstances, the shutdown order is the direct cause of the losses in that circumstance, not a virus—even if the order was issued to stop the spread of a virus.