The unprecedented global cessation caused by the COVID-19 pandemic will have lasting effects on companies worldwide. COVID-19 and the government regulations to control the spread thereof have caused an increasing number of businesses to suspend operations and close down facilities, resulting in substantial losses. Any business owner with a commercial insurance policy that has suffered losses due to COVID-19 should have their policy reviewed immediately by an attorney to determine if they can recover their losses through business interruption insurance. Because insurance companies will attempt to deny claims due to the policy language or exclusions contained therein, it is critical for business owners to understand their policy rights, as well as current and future legal developments in the insurance sector relating to COVID-19, to ensure they are afforded the most protection possible.
I. Business Interruption Insurance and Litigation
Business interruption insurance covers business income that is lost or expenses incurred in the event of a stoppage in business operations due to a disaster, such as hurricanes, earthquakes, fire, or pandemics such as COVID-19. In many cases, business interruption insurance will also cover losses caused by government action, otherwise known as civil authority coverage. While each policy is different, business interruption insurance may cover lost profits, fixed costs, expenses associated with moving to a temporary business location, ingress/egress costs, employee wages, and loan payments, among other things. Each business’ coverage will be determined on a case by case basis, and therefore it is imperative that the policyholder understand their policy, including any time limitations or notice requirements thereunder required to trigger coverage.
For business owners who have a commercial policy for which the insurer has improperly denied a claim, it may be necessary to bring a lawsuit against the insurer. Each state has different laws regulating the insurance industry and the causes of action that may be brought against insurers. Under Florida law for example, if an insurer improperly denies coverage and the insured has complied with applicable notice requirements, the insured can bring an action to recover monetary damages, such as a breach of contract and/or bad faith claim under Florida Statute § 624.155, among other things. Moreover, in bringing a bad faith claim, if the insured can demonstrate a pattern of wrongful denials by the insurer as to indicate a general business practice, the insured will be able to recover punitive damages against the insurer. In any case where an insured obtains a judgment against an insurer for breach of an insurance policy, the insured will also be entitled to recover its reasonable attorneys’ fees pursuant to Florida Statute § 627.428.
II. Coverage for losses related to COVID-19
Just like any form of insurance, the specific language of the policy will control what is covered. Fortunately, courts read coverage clauses broadly to afford maximum coverage to an insured, with ambiguities interpreted against the insurer. Nevertheless, the policy language is always critical, with a specific emphasis on whether the policy is an “all risk” policy or a “named peril” policy, and whether the policy covers “direct physical loss or damage,” as opposed to merely “physical loss or damage” for which coverage is much more likely. If the policy covers “direct physical loss” but fails to define the term, courts have found said term to be ambiguous, and therefore have interpreted it in favor of the insured. Moreover, whether the policy provides for a choice of law provision is significant because different states have differing interpretations regarding what constitutes “losses” and/or “damages” covered by insurance policies. In any case, coverage for losses related to COVID-19 will not be guaranteed, and, as will be explained later, many policies now include specific exclusions for viruses.
Notwithstanding, there is a significant body of case law in which courts have found physical loss or damage requiring coverage from an insurer where no physical change to the premises occurred, and these cases will be highly relevant to litigation concerning COVID-19 losses. For example, the Supreme Court of Colorado has held that while “loss of use” does not by itself constitute “direct physical loss,” when such loss of use is coupled with a local government order requiring the premise to be evacuated due to the accumulation of gas around and under the property, “loss of use” did equate to “direct physical loss” in an all risk policy. Furthermore, multiple federal courts have found that an insured could be covered if their property is made “useless or uninhabitable” due to the presence of bacteria or dangerous substances like smoke or asbestos, finding that “property can sustain physical loss or damage without experiencing structural alteration.”  Accordingly, while coverage is not guaranteed, there is already well-established case law for courts to consider to determine that an insurer is required to cover business losses suffered as a result of COVID-19, and this issue is sure to be contentiously litigated for many years to come.
All policies contain specific exclusions from coverage, and policyholders need to pay attention to the specific language of the exclusions. As alluded to earlier, many current policies contain an exclusion for business losses due to viruses or bacteria, which became commonplace as a result of the SARS outbreak in the early 2000s. Despite these exclusions, however, there are significant judicial and legislative developments that have been, and will continue to be, beneficial to policyholders and could expand coverage to countless businesses for losses relating to COVID-19.
Contrary to coverage clauses, courts interpret exclusion clauses narrowly and even more strictly against the insurer than other clauses. Moreover, courts have espoused multiple doctrines and other principles to extend coverage to as many insureds as possible even in the face of specific exclusions. Examples of the foregoing include the contra preferentem (“interpretation against the draftsman”) doctrine and the concurring cause doctrine, which states that “coverage may exist where an insured risk constitutes a concurrent cause of the loss even when it is not the prime or efficient cause.” Therefore, in accordance with the concurring cause doctrine, if a policy has an exclusion for viruses, but also contains civil authority coverage, a business owner whose operations were interrupted by government regulations to stop the spread of COVID-19 would be covered for the losses associated therewith in spite of the virus exclusion.
In addition to the foregoing judicial responses to insurer attempts to exclude coverage, several states have already proposed legislation to expand commercial business interruption coverage for losses resulting from COVID-19 retroactively despite applicable exclusions. Currently, New York, New Jersey, Ohio, Massachusetts, and Louisiana have all proposed such legislation requiring insurers to cover COVID-19 losses, with more likely to follow. Accordingly, losses that currently are not covered under a specific policy may be covered in the future due to developing judicial and/or legislative responses to insurer attempts to exclude coverage, and policyholders should stay informed of these forthcoming developments.
In these times of uncertainty, business interruption insurance will be essential for businesses, particularly small businesses, looking to weather the storm caused by the COVID-19 crisis. As established herein, although there are no guarantees, there are realistic bases for insurers to be required to provide coverage for losses suffered resulting from COVID-19 and/or related government actions. Moreover, there are judicial and legislative measures being taken to expand coverage, and therefore even if a policy currently excludes coverage, that could change in the near future. Nevertheless, to be afforded the most protection possible, the insured must fully understand their policy, with special attention to any notice requirements or time limitations set forth therein.
Accordingly, business owners should seek the guidance of experienced attorneys to have their policies evaluated immediately to ensure they will be able to obtain the maximum benefits of the policy. The attorneys at Stok Kon + Braverman have substantial experience litigating against insurers who have improperly denied claims, and understand the current state of the law as well as future developments that will benefit policyholders immensely. Therefore, if you are a Florida business who has suffered losses relating to COVID-19 and your business interruption insurance claim has been denied, be sure you have the maximum protection possible by retaining the skilled commercial litigation attorneys at Stok Kon + Braverman.
For further information and guidance regarding business interruption insurance and recovering losses due to COVID-19, including how the foregoing relates to your business or personal circumstance, contact the lawyers at Stok Kon + Braverman online at www.stoklaw.com or by telephone at (954) 237-1777 to schedule your consultation.
W. Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52 (Colo. 1968)
Motorists Mut. Ins. Co. v. Hardinger, 131 Fed. Appx. 823 (3d Cir. 2005)
Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am., 2014 WL 6675934, at *5 (D.N.J. Nov. 25, 2014)
Sebo v. Am. Home Assurance Co., Inc., 208 So. 3d 694, 698 (Fla. 2016)