PART II – BUSINESS INTERRUPTION INSURANCE – AM I COVERED?
By: Tucker H. Byrd, Byrd Campbell, P.A.
Byrd Campbell presents Part II in its treatment of financial and legal issues faced by businesses in the aftermath of the Coronavirus Pandemic. Know this: the virus will be defeated, in time, but the financial and legal effects will most likely be felt for years. In this second installment, Byrd Campbell addresses the question:
WILL BUSINESS INTERRUPTION INSURANCE COVER MY BUSINESS FOR LOSSES SUSTAINED FROM THE CORONAVIRUS PANDEMIC?
This analysis begins, of course, with the assumption that you have an insurance policy which provides some type of “business interruption” coverage, either through the main policy, or an endorsement thereto, for business losses sustained from a covered event. If a policy exists which includes this coverage, interpreting the language in question will be critical. Sometimes the language is clear, sometimes not. Ambiguities in the policy are customarily construed against the insurance company.
One would think that sophisticated insurance companies writing complex policy documents would always create something clearly expressed and understood, but that is not the case. This is where the courts may have to get involved. But even the court’s interpretative exercise can get messy. First, the court must decide which state’s law shall be applied to interpret the policy. Generally, the law of the state where the policy was “delivered” to the insured shall be applied to construe the policy. However, if that state’s law allows the parties by contract to stipulate that another state’s laws of interpretation shall apply, then the other state’s law usually shall be applied. Expect most sophisticated business insurance policies to specify which state’s law shall be applied to construe the policy.
Next, applying and understanding the coverage in the policy can be no less daunting. Between the multitude of defined terms, interlaced between various sections of the policy and endorsements, the jargonistic journey only begins. The exercise becomes more confounding as exceptions spring up in the language, only to be polished off by a laundry list of exclusions. Is an exception to an exclusion for something not included in the originally defined term for a covered event covered? You get the point.
To help you in this journey, here is a quick summary of terms and provisions to consider:
1. In what section of the policy does the “business interruption” coverage appear?
If it appears in the “Property Coverage” or “Premises Coverage” section, watch out. Examine whether the coverage applies only when there is some type of physical loss of or damage to the “Covered Property.”
2. Does the policy require some type of physical loss of or damage to physical property?
Many court battles have been fought over whether the wording of the policy requires this.
3. Does the policy’s definition of “covered property” encompass your loss?
The term “Covered Property” probably invokes a long list of things included, but many of them may be physical in nature (e.g., building, personal property inside, etc.).
4. Does the policy’s definition of “covered causes of loss” encompass your loss?
Here again, the language may be unclear and fraught with limitations.
5. Do the policy’s exclusions knock out coverage altogether?
These issues usually draw the most attention, particularly when the casualty event involved something extraordinary. For years, many policies excluded coverage for earthquakes, wars, and nuclear disaster. More recently, though, policies started including exclusions for “virus, bacterium or other microorganisms that include or is capable of inducing physical distress, illness or disease.” They might even use the dreaded P-Word: “pandemic.” [See further comments on this below].
6. Does the policy include further limiting conditions?
For example, the policy may not cover specific types of damage.
7. Does the policy cover all types of lost “business income?”
Finding coverage in your policy is one thing; finding adequate coverage for all you lost might be another. Usually, lost “business income” refers to net income, not gross income. You must prove you lost profit.
Here’s the point of this exercise: Commercial insurance policies are legal contracts, written by lawyers for the insurance companies. Maybe they were not designed as traps for the unwary, but reading one might make you think so. Upon finding an exclusion or loss limitation you had not anticipated, you may cry, “What was I paying all those premiums for if I am not covered.” Before you give up, make sure that someone qualified reads and helps you understand your policy. Do not assume that in a close question of interpretation the insurance company will give you the benefit of the doubt. They usually will not.
One last point about facing a policy with an exclusion for a “pandemic” bears noting. If your policy has such an exclusion, do not let that discourage you. There is a good chance the exclusion would only apply if your business lost income because of an actual infestation, and not apply to lost income caused by public angst or worse, some type of government-directed shutdown or quarantine which caused you to shutter your business.If you have business insurance coverage questions, call us. Byrd Campbell Means Business!
For Consultation Contact: