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COVID-19 & Business Interruption Insurance

The novel coronavirus has torn through the world, causing illness, death, and disruption that seeps into every aspect of life. Unfortunately, this includes businesses closing and losing money on a daily basis. Louisiana has been one of the “hot zones” for COVID-19 in the United States, so its businesses have felt the economic impact sooner than other areas in the country.

 

At the time of publication, Louisiana’s governor has extended his Stay at Home Order until April 30th. This means all non-essential businesses must be closed and owners will suffer a loss of income, prompting them to file insurance claims to recoup losses. Whether you’ve filed a claim and been denied or you plan to file a claim, we share this information to help you understand the reasons insurance carriers are denying these claims and what actions you can take as you go forward.

First-Party Property Policy Coverage

It’s typical that first-party commercial property insurance policies cover property damage and profits lost as a result of that damage. Property damage triggers coverage for lost income in these situations:

  • Business Interruption.  Damage to the policyholder’s property
  • Contingent Business Interruption. Damage to a customer’s or supplier’s property
  • Order of Civil Authority. Government action such as hurricane evacuation orders
  • Leader Property Interruption. Damage to a neighboring business that attracts customers

Two main issues lie at the heart of insurance company responses to claims related to COVID-19. First, does the virus in and of itself constitute property damage?   If the answer is “yes,” did the damage result in the loss of income?

Physical Property Damage vs. Structural Property Damage

COVID-19 is not reported to cause permanent physical damage to property, but it spreads through infected surfaces or the air. This means it can be present in all commercial spaces including buildings, buses, boats, aircraft and also on outdoor surfaces like gas pumps and dumpsters.

In some past cases, courts have ruled that harmful substances do constitute property damage that causes first-party property coverage to kick in. For example, a New Jersey federal court ruled in Gregory Packing, Inc. v. Travelers Property Cas. Co. of America that the accidental release of ammonia into a building was covered property damage. The court’s decisions explicitly stated that physical damage can occur without structural change. In similar cases, New Hampshire and Oregon courts ruled that property damage occurred without structural changes.

In late March, a Louisiana restaurant filed the first COVID-19 insurance coverage lawsuit. The legal team is comparing the presence of the novel coronavirus to harmful gaseous fumes or lead. The French Quarter restaurant, Oceana Grill (Cajun Conti LLC) is suing Lloyds of London, and U.K. based insurance company, to pay for pandemic-related losses. The insurance company’s lawyer argues that government orders about concerns of contracting COVID-19 aren’t sufficient to trigger business interruption insurance. The outcome of this lawsuit will play a large role in determining future insurance disputes about business losses related to COVID-19.

The Scope of Contingent Business Interruption Claims

Depending on the type of business you own, you can also suffer coronavirus-related business losses because of losing suppliers or customers. Overseas suppliers and customers impact domestic business too. Many businesses are suffering loss because their supply chain is disrupted or broken as a result of the spread of COVID-19.

In the context of first-party property insurance, contingent business interruptions caused by the loss of suppliers typically include manufacturers and distributors. Yet, you do not have to have a supply contract with a third party for you to experience a contingent business interruption. For example, cruise lines and airlines shutting down drastically lowers the number of tourists that visit New Orleans, which especially impacts businesses in the French Quarter, CBD, and Garden District.

In a 1996 Illinois court case (Archer — Daniels Midland Co. v Phoenix Assurance Co.), the court ruled that the insurance company must pay the plaintiff, a food company, for their contingent business interruption claim.  The Army Corps of Engineers caused damaged to flooded boat channels resulting in poor yields and lost crops for farmers, who would have indirectly sold their crops to the plaintiff.

Other contingent business interruptions that have emerged from Lousiana’s Stay at Home order include losses because people cannot gather in public spaces and access businesses. Similarly, leader property issues have also emerged. The cancellation of all sports events, conferences, concerts, and other events have impacted hotels and restaurants near the venues where these events were scheduled.

Insurance Company Defenses for Denying COVID-19 Claims

You can be sure insurance companies will use every defense they can to avoid having to pay or to devalue your COVID-19 business interruption claim. If you have not filed a claim yet, some of the reasons for denial might include:

  • The language in your policy excludes damage caused by biological agents.
  • Your policy might have sub-limits for some of the above types of coverage or force you to wait for a certain amount of time before you can file a claim.
  • If your carrier considers COVID-19 as property damage, they still will only cover the amount of time you need to repair the property. In the eyes of the insurance company, this means you can do some cleaning, eliminate the virus, and your business is restored. This is only a drop in the bucket if your business is closed for weeks or months.

My Business Interruption Claim Was Denied, Now What?

If your COVID-19 related business interruption claim was denied by your insurance carrier, you need to take action. The outcome of the Oceana Grill case will be telling but does not definitively determine the outcome of your claim. You can expect disagreements about whether your closure falls under the umbrella of property damage, but a skilled attorney can help you fight that battle. Contact The Law Office of John W. Redmann, LLC online or call us at (504)500-5000 for a free consultation to discuss your business interruption claim. We have served the Greater New Orleans area from our offices in Gretna and Metairie for 25 years and we are here to help you through this challenging time.