BLUF – Nonprofits should review the language of their business interruption insurance policies and provide notice to their insurance company of any potential claim due to property affected by COVID-19.
Generally, business interruption insurance protects an organization against lost income due to physical loss or damage to covered property resulting from covered peril. Some business interruption policies include special endorsements that insure against lost income sustained due to the existence of a communicable disease at the insured property or a government order prohibiting the use of the property. Other policies specifically exclude claims based on these circumstances. For example, policies entered into after the SARS outbreak in the early 2000s often exclude coverage for loss due to viral infections or contamination.
The most challenging element of any business interruption claim for COVID-19 related losses will likely be establishing that COVID-19 caused physical loss or damage to the insured property. Some state courts have held that, in certain circumstances, contamination of a property (e.g., due to smoke, noxious fumes, asbestos, etc.) is enough to establish physical loss. Whether contamination of a property by COVID-19 is enough to establish “physical loss or damage” is still an open legal question. Two lawsuits have already been filed by policyholders in California and Louisiana claiming, in part, that COVID-19 contamination at an insured property is a physical loss and, consequently, any resulting business interruption should be covered under the policy. French Laundry Partners, LP dba The French Laundry, et. al. v. Hartford Fire Insurance Company, et. al.; Cajun Conti, LLC et. al. v Certain Underwriters at Lloyd’s London et. al.
Due to the challenges in establishing coverage for COVID-19 related losses, several members of Congress wrote a letter to insurance industry executives asking insurance companies to cover COVID-19 related losses as business interruption losses. Industry executives responded that “business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19,” setting the stage for further litigation of these claims.
New Jersey is considering a bill that would require insurance companies to cover COVID-19-related losses, including loss of use and occupancy, under business interruption policies in force on the date the Governor of New Jersey declared a state of emergency. Insurance industry groups have actively opposed this legislation. To date, no other state has proposed similar legislation.
Despite uncertainty surrounding coverage for COVID-19 related losses, nonprofits should not wait to notify their insurance company of a potential claim. Business interruption policies often have very strict notice provisions. Policyholders who wait to file a claim may find coverage is denied because notice was not provided within the time frame outlined in the policy.
When filing a claim, remember to keep accurate records, track expenses, and document any losses meticulously. Insurance carriers typically require policyholders to file a “proof of loss” within a set period (often 60-90 days) after discovery of the loss. The proof of loss will set forth additional details about the claim including, among other things, the policyholder’s interest in the property, the value of the property damaged, and the time and origin of the loss.