With the increase in scope and number of government business shutdowns arising from the continued spread of the coronavirus, companies across the country are hemorrhaging money and looking for relief. One potential avenue for relief is insurance coverage for action taken by civil authorities.
Many businesses carry all-risk property insurance policies that may contain provisions for: business interruption coverage, contingent business interruption coverage, civil authority loss coverage, leader property coverage, and extra expense coverage.
Insurance Coverage claims under Civil Authority provisions will skyrocket as federal, state and municipal authorities mandate business shutdowns, shelter-in-place requirements and workforce restrictions.
Typical civil authority provisions cover losses sustained during the period of time when access to real or personal property is impaired by order or action of civil or military authority issued in connection with or following an insured peril. These provisions often cover instances where the peril insured against takes place either at the insured property or at locations other than at the covered premises.
Getting your insurance to company pay your COVID-19 related losses is not going to be easy or simple, however. Coverage for your losses will depend upon policy language, court interpretations of that language, and upon the relationship and proximity between the precipitating event and the governmental order which restricts your business operations.
For example, in United Air Lines, Inc. v. Ins. Co. of State of Pa., 439 F.3d 128 (2d Cir.2006), United Airlines sought business interruption coverage as a result of losses it suffered from the aviation shut down following the attacks of 9/11. The court, in that case, determined that if a civil authority order is “caused by fears of future attacks,” as opposed to the need to “repair, mitigate, or respond” to physical damage inflicted on property of United Airlines, there was no coverage.
Most policies require “direct physical loss” to establish coverage under any business interruption provisions, including losses suffered by business caused the civil authority mandates. Direct Physical Loss typically requires some form of actual, physical damage to the insured premises to trigger loss of business income and extra expense coverage.
Courts have interpreted this to require insureds to prove actual, demonstrable harm of some form to the premises itself, rather than forced closure of the premises for reasons unrelated to the premises themselves, or the adverse business consequences that flow from such closure.
See Roundabout Theatre Co., 302 A.D.2d at 6, 751 N.Y.S.2d 4 (“direct physical loss or damage” language in insurance policy “clearly and unambiguously provides coverage only where the insured’s property suffers direct physical damage”); see also Couch on Insurance, § 148:46 (3rd ed.2009) (defining “physical loss” as a requirement which is “widely held to exclude alleged losses that are intangible or incorporeal”); id. § 167:15 (“business interruption policies generally require some physical damage to the insured’s business in order to invoke coverage”).
Nevertheless, multiple courts have also determined that physical damage need not be tangible, structural or physical, instead requiring some physical element such as fumes, water or noxious odors, which render the insured premises unfit for their intended purpose. These rulings, when applied to COVID-19 losses, may require insurance companies to cover some of these losses.
It is critical to obtain and review your policies and seek professional assistance to determine the availability of coverage. Over the last 20 years, the civil authority coverage landscape has been shaped largely by claims and litigations arising from 9/11 related losses and Superstorm Sandy losses. The emerging economic crisis resulting from the local, state and federal governments’ efforts to slow the spread of the virus is different in many respects. The distinct nature of the three catastrophes opens the door to legal and factual arguments to obtain coverage under these business insurance policies.
The experienced attorneys of Schwartz, Conroy & Hack, P.C. are here to assist you in all aspects for planning and response to losses your business has and continues to suffer as a result of the coronavirus. Contact us today for a free consultation.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack