14 March 2020

Assessing Business Interruption Insurance to Offset COVID-19 Related Loss

***Information and guidance in client updates was up to date at time of publication. During the pandemic, information and guidance has been changing rapidly. If you have any questions about the information contained in a client update, please contact the author(s) or your Miller Johnson attorney.***

With COVID-19 outbreak resulting in venue and business closings, as well as disrupting global supply chain, companies are well served by reviewing their commercial liability insurance policies, to determine if business interruption coverage is provided, and if so, the scope of such coverage.

Business interruption insurance generally covers lost revenue, fixed costs such as rent and utility, expenses from operating from a temporary location resulting from a disruption in a business’s operations and reasonable expenses beyond fixed costs that allow the business to continue to operate.  The coverage extends until the end of the business interruption period as determined by the insurance policy.  Whether coverage is provided for such losses requires the policyholder to comprehensively analyze the consequences of COVID-19, beyond just lost production time.

Generally, business interruption clauses typically require “physical loss or damage” resulting from an “occurrence” (potentially COVID-19) in order to trigger coverage. For some businesses, meeting the elements necessary to trigger business interruption insurance will be easier than for others.

For example, a hotel with infected employees or patrons will more easily be able to establish that coverage is triggered under their business interruption insurance, as opposed to the food service provider to the same hotel, whose contract is cancelled due to the hotel’s closing. The contamination on hotel premises would likely qualify as an occurrence giving rise to physical loss or damage.  For the uncontaminated food service provider, there may be no “occurrence” or event, as defined by the policy, necessary to trigger coverage.

However, many policies contain endorsements or riders that expand the scope of business interruption coverage or the definition of “occurrence.” Additionally, some policies provide related, supplemental coverages.   For example, some policies provide coverage for “supply chain” or “contingent business interruption.” So, even if it appears the policy does not provide business interruption coverage resulting from COVID-19, the insurance policy must be analyzed to determine whether coverage is triggered as not all policies have the same triggering events

Business interruption claims determinations turn on the unique facts of each claim, the specific language in the applicable policies, and the law under which those policies are interpreted.  As such, each claim must be evaluated on a case-by-case basis.

Assessing the applicability of various insurance policies to the COVID-19 outbreak may seem overwhelming.  But you do not need to do it alone.  Miller Johnson’s Insurance Policyholder Counseling and Recovery attorneys are here to help you assess and seek coverage as you work through your loss avoidance and mitigation strategies related to COVID-19.