5.19.20 | Vision 2020 – COVID-19 Update
The sweep of the COVID-19 pandemic has forced businesses across the country to close due to government mandates while others have seen a significant decrease in revenue stemming from various stay-at-home and social distancing requirements. Given the nature of the shut-downs, one would expect that companies may find some relief from their insurance policies. Unfortunately, many owners who have reached out to their insurance companies to inquire about the process of making a business interruption claim are being told that a pandemic does not qualify.
Why the Denials?
The common explanation that business owners are hearing from their insurance company is that their business interruption coverage is only triggered when there is loss of revenue due to property damage. A typical example is a natural disaster or fire that causes the closure or suspension of a business.
What’s the Alternative?
When loss of revenue is directly linked to restrictions placed on business from various federal, state and local jurisdictions, it opens the possibility of an insurance claim under the civil authority clause. A civil authority clause generally covers claims made by policyholders when businesses are closed or unable to operate under normal conditions due to government mandate.
It is recommended that owners review their insurance policy carefully to determine if they are in a position to file a claim to recover lost revenue. Policy language often varies and is subject to interpretation. All potential claims need to be reviewed on a case by case basis.
The ambiguity in policies has led to an increase in lawsuits brought against insurers by business owners who have been denied claims. Most policies require timely filing of claims, so business owners should consider making claims even if they are certain they will be rejected, since subsequent litigation could potentially affect how your claim is ultimately resolved.
According to John Westerman, Managing Partner at Westerman Ball Ederer Miller Zucker & Sharfstein, LLP, “Our firm filed a business interruption claim, which was denied as expected due to the virus exclusion. We have also advised, and assisted, our clients in filing business interruption claims as well, again those were denied due to the same exclusion. Until this situation plays out in D.C. and elsewhere, we think it is advisable to file the claims. Remember after [Hurricane] Sandy claims in New York were initially denied because the wind speed was under Hurricane level when Sandy hit New York, pressure from Albany resulted in many of the claims being accepted. In these very strange times, we feel it is better to make the claim and see how things play out.”
Be aware that as different states and federal courts evaluate coverage issues stemming from the pandemic, it is possible that the issues may be resolved differently. If a business has operations in different jurisdictions or seeks contingent business-loss coverage related to the operations of a supplier or customer in a different jurisdiction, a factual and legal conflict-of-laws analysis may be necessary.
Possible Federal and State Action
There have also been discussions in Congress and proposed bills by multiple state governments that would mandate insurers cover business interruption claims. Some of these proposed bills are designed to aid small businesses by limiting the potential claims to smaller businesses with fewer than 100 employees.
The insurance claim process is still taking shape and Berdon LLP will continue to monitor for significant developments.
For more information on this topic or any other matter related to the COVID-19 pandemic, please contact your Berdon advisor and visit Berdon’s COVID-19 Information Center.
Berdon LLP New York Accountants