We hope that you are safe and well during these concerning times. We remain diligent in following the development of the COVID-19 “Coronavirus” pandemic. The State of California has implemented a “safer-at-home” order, forcing a substantial number of businesses to fully cease or significantly reduce their operations. While government relief is in the process and provides some support to certain industries, the fear is that many companies are unable to sustain this shut down and will be forced to close permanently due to their business income losses.
Businessowners must take immediate action to protect businesses during this time. Business Insurance Coverage policies need to be reviewed and addressed. Laws and regulations that mandate coverage will be developing during this process. We are here to assist businesses and its owners with this immediate action. The attorneys of Abir Cohen Treyzon Salo, LLP (“ACTS LAW”) specialize in this field and, to help you pursue your claim, we have identified several guidelines.
- Do you have business interruption coverage?
“Business interruption” insurance covers the loss of income that a business suffers after a loss occurs. Unlike property insurance, which covers the physical damage to the business, business interruption insurance compensates you for profits that you otherwise would have earned.
Business interruption insurance is usually purchased as an additional coverage. If the coverage does not appear in your primary policy, it may have been included in an “endorsement,” which is a separate document containing policy provisions that modify the original policy terms.
- Check your policy for a “Virus/Bacteria” or “Microbe” exclusion.
Most insurance policies cover all losses unless they are otherwise excluded. These policies define a “Covered Cause of Loss” as “direct physical loss unless the loss is excluded or limited in this policy.” California law favors insurance coverage, so the exclusions are read in a manner that favors coverage. As a result, unless the term “virus” appears in exclusion language, it is difficult for an insurer to argue that the loss is excluded.
On the other hand, an exclusion for “virus or bacteria,” or alternatively “microbes,” will categorically exclude your insurance claim from any coverage. Be mindful that this exclusion might not appear in the policy itself, but rather through an “endorsement.” Check your policy documents carefully because insurers often add exclusions to your policy through such “endorsements.”
- “Government Action” or “Civil Authority” provisions may provide coverage.
Even if you have business interruption insurance—and no virus exclusion—the insurance company may deny coverage by arguing that a virus does not cause “direct physical loss” to property. Although some courts have disagreed with this approach, finding that structural damage is not required to establish “direct physical loss,” there is no uniform rule. In these circumstances, look for coverage under “Government Action” or “Civil Authority” provisions in your policy. If your policy will cover the loss when “access to real or personal property is prohibited by order of civil or military authority,” you may have coverage for the government’s forced closure of your business due to a stay-at-home order. On the other hand, some policies will cover your loss only if “action of civil authority . . . prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises,” meaning that you must show physical damage to someone else’s property that caused the authorities to close your business. This is much harder to establish.
- Do you have contingent business interruption coverage?
If your business operations depend on another business being open and operational, then you should check to see if you have “contingent” business interruption insurance, which is usually purchased as an additional coverage. This insurance may cover losses that result from damage to another property upon which your business depends, such as customers’ or suppliers’ property.
In general, for your loss to be covered as a contingent business interruption, the physical damage to other property must not be a type that is excluded by your policy. As a result, you must still check your policy for virus/bacteria/microbial exclusions.
- Call the attorneys at ACTS LAW so that we can help you decipher your insurance policy language and act on it immediately.
These general guidelines are not a one-size-fits-all answer to your questions. They cannot substitute for rigorous legal analysis from the insurance attorneys of ACTS LAW. We are open for business and are working remotely to comply with governmental orders. Our consultation is free of charge and we want to answer any questions you may have at 833-ACTS-LAW.