COVID-19
ONE (OR TWO) KEY PROPERTY LOSS PROVISION(S) ATTORNEYS KEEP FORGETTING Are you tired of talking about COVID? I am. Are you as tired of the COVID business income coverage debates? I am. Because I’m so worn out, this article focuses on ONE, ok two, key policy provisions every attorney and most judges seem either to forget or are purposely ignoring. Maybe it is because these provisions apply only when two conditions meet: The policy does not contain a virus exclusion; and The court holds that the presence of the virus ON the surface of the property qualifies as “direct property damage.” A judge in Ohio recently denied one insurance carrier’s request for dismissal in two separate suits because both conditions were present. Cuyahoga County Court of Common Pleas Judge Maureen Clancy allowed the argument that the presence of the virus on the property caused damage. Plaintiff attorneys contend that is was essentially the same as smoke damage. Thus, the presence of the virus on the surfaces (if it can be proven) results in direct property damage triggering the property policy and business income coverage to respond. More detail on this discussion and decision can be found in the Claims Journal article, The Key to Winning COVID BusinessInterruption Claims: Say the Virus is Present. Although this seems to be an unusual allowance, it must now be addressed.
At least two judges to this point have seemingly ignored the generally understood meaning of “damage” applied by most courts – a change in the physical condition necessitating repair - holding that presence of the virus causes direct damage to the property. If direct damage has occurred, business income coverage can be triggered. Policy Conditions Within insurance contracts there are policy conditions. Some are “conditions precedent” and others are “conditions subsequent.” “Conditions precedent” are conditions the insured must comply with BEFORE a loss occurs to assure coverage is available WHEN a loss occurs (i.e. being truthful in the application, paying the premium, etc.). “Conditions subsequent” are conditions that must be complied with AFTER the loss to protect coverage (i.e. reporting the loss and providing a proof of loss). Violation of a condition subsequent can negatively affect coverage, up to and including voiding coverage. Two “conditions subsequent” found in ISO property policies apply specifically to the claim that the presence of a virus on the surface causes direct property damage. These read:
In reality, this accusation is quite easy to defeat. Well, the intent is not really “defeating” the ruling, but rather to use the ruling to prove that little to nothing is owed by the insurance carrier, even if the presence of a virus is similar to smoke.
3. Duties In The Event Of Loss Or Damage
Business Income Truism
(4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limit of Insurance. However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also, if feasible, set the damaged property aside and in the best possible order for examination.
One fact about business income coverage rarely discussed during these “COVID court days” is that business income is not stand-alone coverage. Business income is triggered only when there is first a direct loss to property.
16 | FEBRUARY 2021 |
wisconsin INDEPENDENT AGENT
a. You must see that the following are done in the event of loss or damage to Covered Property:
