by Max H. Stern and Jessica E. La Londe
A key issue that many insurance companies will face in the upcoming weeks and months is whether their policies provide coverage for policyholders’ business interruption losses from the COVID-19 crisis. This is not merely an academic question: the first coverage case on this issue was filed in Louisiana this week (Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s London, et al.) and legislatures are already considering legislation that may significantly impact the insurance industry (see New Jersey’s proposed legislation on insurance coverage for COVID-19 business interruption claims and letter from members of Congress to insurer trade groups encouraging the acceptance of business interruption coverage for COVID-19 losses).
As in every case, whether there is coverage for these losses will depend, in the first instance, on the policy language, which must be looked at closely. The applicable law and specific facts will add layers of complexity to the issues. Based on our experience with advising on and litigating coverage for business interruption losses, some of the following issues may be in play.
First, insurance companies will have to determine if the policy provides business interruption coverage at all (either in the policy form or by endorsement) and then whether the loss falls within the relevant scope of coverage. This may include, for example, whether the timing of the business interruption loss triggers coverage (often, the business interruption must “commence” during the policy period) and whether the coverage applies when the source of the business interruption is unrelated to the policyholder’s property.
Second, some business interruption coverage may contain exclusions that apply to the losses suffered because of the COVID-19 crisis. For example, in 2006 ISO adopted a “virus” exclusion for business interruption coverage (as a result of previous virus outbreaks, including SARS). Other types of specialty policies may provide coverage that extends business interruption coverage to pollution or biological contamination, but they may be subject to communicable disease exclusions or other limitations.
Third, in our experience, novel business interruption claims need to be closely examined with respect to the nuts of bolts of the requirements for business interruption coverage, such as:
– Issues of proof, such as demonstrating the exact amount of loss over and above expenses, taxes, etc. that would have been incurred;
– Whether business interruption loss applies when there is a complete and total loss (as opposed to a mere “interruption”);
– The point at which true business interruption begins and ends;
– Notice/reporting issues; and
– Deductible/self-insured retention and policy limits issues.
The potential coverage issues in COVID-19 business interruption claims are varied and complex and may benefit from experienced coverage counsel.