UNDERSTANDING BUSINESS LOSS INSURANCE
What business owners should consider when they are told their losses are not covered
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By Rob Ammons, The Ammons Law Firm
eing a business owner right now is difficult. Between Coronavirus damage and orders from state and local governments, most businesses have shut down. While businesses are closed, fixed expenses (e.g. rent, utilities, insurance) drain cash reserves. As commerce in many sectors of our nation’s economy has ground to a halt, most businesses have been forced to close, and for some, the only option has been to furlough employees.
Many business owners were diligent, purchased insurance, and paid premiums for years in order to have coverage for business losses. Often insurance agents and brokers promoted the insurance by describing the policy as a “safety net” in case there was a business interruption. But now when the coverage is needed the most, insurance companies and agents are telling businesses that their losses are not covered. One thing is certain: when it comes to protecting policyholders against business losses associated with the Coronavirus Pandemic, business owners are finding out that the insurance industry is not a good neighbor and not on their side. Despite what businesses are being told, there may be insurance coverage for losses associated with the Coronavirus Pandemic. Whether a business is covered for the current interruption in its activities is a question that requires an analysis of the specific language of the insurance policy including all exclusions, a review of the government order closing local businesses, and knowledge of the legal precedent interpreting insurance policies. When it comes to insurance coverage, the specific language of the policy makes a difference. While some policies have formidable exclusions that arguably eliminate coverage, there are many variations in the policy language and some policies may not exclude coverage. In connection with most business loss claims associated with the Coronavirus Pandemic, three things that to look for in a commercial property insurance policy are (1) business interruption coverage, (2) civil authority coverage, and (3) microorganism coverage or exclusion. Business Interruption Coverage
Business interruption coverage ensures a business for losses caused when its normal business operations are disrupted. This coverage is usually bundled with other types of coverage under a business owner’s policy, but some businesses may have separate policies that cover business-interruption losses.
12 May | June 2020
A feature of business interruption coverage you will want to be aware of is the standard policy language in most policies that limits coverage to losses caused by “direct physical loss of or damage to property.” Based on the claim denial letters business owners are receiving, it appears that the insurance industry is taking the position that a virus in a business that attaches to surfaces, lives for days, is highly contagious and potentially deadly does not constitute any damage to the business owner’s property. While no Court has yet ruled on whether the Coronavirus causes property loss or damage in a COVID -19 case, there are comparable situations where Courts have found the requisite property damage to invoke business interruption coverage. The language of the Harris County Judge’s Order that closed businesses should also be helpful to businesses when they challenge the denial of their insurance claims. Specifically, Harris County Judge Hidalgo’s Order states: Whereas the COVID-19 virus is contagious and spreads through person-to-person contact, especially in group settings; and
Whereas the COVID-19 virus causes property loss or damage due to its ability to attach to surfaces for prolonged periods of time;
Source: www.readyharris.org/Stay-Home
Based on this declaration, it can be argued that all businesses that are normally open to the public have suffered the type of property loss or damage necessary to trigger coverage under standard business interruption policy language. Civil Authority Coverage
Many businesses have insurance policies that include “civil authority” coverage—a type of coverage for lost business income that should be available when your business is closed by order of a government entity. Seems clear. However, when it comes to insurance coverage issues, very little is black and white. Insurance companies and their armies of lawyers are very creative when it comes to finding ways to deny coverage to businesses and policyholders. For example, after September 11, 2001, airspace was closed by the government. Airlines, hotels, restaurants, and other hospitality businesses were devastated by the loss of business they suffered due to the lack of airline travelers. Even though these businesses had civil authority coverage, insurers denied their claims, arguing that the government orders did not order that those businesses close. The same thing happened to businesses in
