15 May 2020

Protecting Your Insurance Claim for Business Losses Related to COVID-19

COVID-19 has severely undermined the “bottom line” of numerous businesses in Michigan and across the United States. Businesses purchase interruption insurance to protect them against unforeseen, rare, potentially catastrophic business interruptions. But insurers are refusing to pay business interruption claims arising from the pandemic. Across the United States, insurers have taken the position that losses arising from COVID-19 are not a “direct physical loss” subject to coverage; or, even if they are, it is excluded from coverage pursuant to various provisions.

The law on whether business interruption policies cover pandemic-related losses is unclear and in a state of flux. Michigan Courts have written little on the interpretation and application of “direct physical loss” and various state legislatures (and Congress) are contemplating legislation that would favor policyholders. In light of this uncertainty, this Alert briefly addresses why a policyholder should make a claim for coverage—even though the insurer will likely deny it—and some other prudent steps a policyholder can take to increase its likelihood that it will obtain coverage.

Why make a claim for coverage?

Put simply, if the policyholder doesn’t make a claim, the chance of getting coverage is 0%. In contrast, making a claim places the policyholder in good position to take advantage of future legal developments that could benefit the policyholder, whether those developments are favorable legal opinions or legislation passed by Congress or a state legislature. It costs little to make a claim, and obtaining insurance coverage could make the difference between surviving and going out of business. Don’t let those premiums go to waste.

What steps can a policyholder take (both before and after its claim) to protect its rights?

First, meet with legal counsel early on to review the specific language in the insurance policy. Every policy is different and each one will have different language regarding: 1) when the policy holder must notify the insurer about a loss, 2) how failure to comply with various provisions may lead to the waiver of the claim, 3) what losses are covered, 4) what exclusions apply, 5) what claim “caps” are for a specific type of loss, etc. Learning about the details of the policy early on will help make the claim process more efficient and reduce the number of surprises that may arise.

Second, make a claim as soon as possible by sending the insurer a carefully written “notice of claim” letter. Sending this letter accomplishes a few goals at once. First, it starts the process and gets the policyholder “in the queue.” Second, it will preserve the policyholder’s claim (at least for a while). Indeed, it is common for insurance policies to require a policyholder to make a claim within a very short period of time after the loss has occurred. Otherwise, the claim may be waived.

Third, thoroughly document losses and the causes thereof. The insurer—at some point, but likely sooner rather than later—will require the policyholder to demonstrate: (1) a business income, extra expense or other loss covered by the policy; (2) caused by; (3) direct physical loss or damage to property; or (4) prohibition of access by a civil authority (which itself must be caused by direct physical loss or damage to property away from the insured’s premises). This process will be less stressful if the policyholder began gathering data in an organized fashion from day one, and, the more detailed the data that has been gathered, the more likely it will be persuasive to an insurance adjuster (or a court).

Fourth, mitigate losses where possible. Both liability and property insurance policies, as well as the common law, impose upon policyholders the obligation to mitigate losses and require the insurer to pay for the costs of mitigation efforts, though many policies limit mitigation coverage to the amount by which the expenses reduced the loss that otherwise would have been incurred. Accordingly, there may be coverage for costs incurred to make alternative arrangements so employees can get back to work, or extra expenses incurred to allow production or delivery of products and services to resume or continue.

Once the policyholder has provided the insurer with the notice of claim, what will happen next and what are the policyholder’s next steps?

After the policyholder makes the claim for coverage, it should continue to meticulously track its losses and mitigate damages where possible. The insurer may request that the policyholder provide proof of loss. The proof of loss will detail the loss suffered by the policyholder.

If the claim is denied, the litigation limitation period within the insurance policy will begin. Generally speaking, those limitation periods state that the policyholder has a limited period of time to file a lawsuit after a claim is denied; if the policyholder fails to initiate litigation during the limitation period, its claim is likely barred. As such, if the policyholder did not seek the advice of counsel before filing the notice of claim, the policyholder should definitely do so after the claim is denied.


In sum, policyholders affected by COVID-19 should review their insurance policies in detail and file a claim with the insurer as soon as possible to preserve their rights. Policyholders should anticipate that the insurer will deny the claim. Before and after filing that claim, policyholders should collect data and documentation that supports their losses and attempt to mitigate their damages. If and when the claim is denied, the policyholder should keep a close eye on the litigation limitation period within their insurance policy.

If you have any questions about this client alert, please contact the authors.