COVID-19 has caused a complete economic shut down as social distancing, stay-at-home orders, and quarantines are now the norm. Many businesses had the foresight to purchase business interruption insurance to provide financial certainty during uncertain times. The question is whether business interruption insurance covers a pandemic such as COVID-19 and the answer depends on the wording of the insurance policy.
Physical Loss or Damage
In general, business interruption insurance policies require a direct physical loss or damage to a property caused by a covered peril (i.e. fire, water damages, a break in, etc.) in order for business interruption coverage to apply. Most commercial policies have exclusions for loss due to contamination by virus and similar perils, such as pandemics. After the 2002-2003 SARS outbreak most insurance companies added exclusions to standard commercial policies for losses caused by virus or bacteria. Some even adopted language to their policies excluding losses caused by WHO acknowledged pandemics. This exclusionary language was intended to avoid business-interruption claims due to a pandemic like COVID-19.
Washington case law has interpreted business interruption policies in a similar manner since 1980. A Washington motel was forced to shut down due to the ongoing fall of ash from the Mount St. Helens eruption. Although there was damage caused to the landscaping, there was no physical damage to the motel itself. Nevertheless, the motel had to shut down due the continued fall of ash. When deciding whether the motel’s forced shut down was covered by their business interruption insurance, the court of appeals ruled in favor of the insurer, because the ash only damaged the landscape and shrubbery, but the damage did not result directly in a business loss.
Other State Law
Some states are taking matters into their own hands in order to protect businesses. Lawmakers in New Jersey, Ohio, and Massachusetts are considering bills which would retroactively change policies and allow the insured to collect on business interruption insurance claims.
Also, there are cases in both California and Louisiana which will test the coverage allowed under business interruption insurance. In the California case the plaintiff is arguing the policy extends coverage for direct physical damage caused by a virus. They assert the Coronavirus causes direct physical damage by remaining on surfaces for up to twenty-eight days, necessitating cleaning and fumigating to remove microbials, and cite Napa County’s shelter-in-place order, which states that it is being issued based on evidence of physical damage to property. Although each set of facts is unique this case will be informative for the cases to follow.
While recovery under business interruption insurance seems unlikely, it is important that business owners review all their policies. There may be gaps in the language that allow for a business to recover. Also, it is important to document all losses which are specific to COVID-19, so that if an owner can make an insurance claim, they are ready with the support for their claim. This includes collecting all relevant financial documentation needed to calculate lost income and extra expenses to support a claim.