Business Interruption Insurance and COVID-19: An Overview
By Greg Mollett
By governmental command or voluntary decision, businesses of all kinds have been altering or limiting operations or closing their doors entirely. Often the business decisions are made apart from any thought of the potential insurance implications. In particular, businesses with commercial property insurance policies may not have been considering whether business interruptions coverage would apply.
There likely will be years of insurance coverage litigation relating to the making and denial of such claims. However, there are steps that businesses can take now to best position themselves to preserve whatever coverage they have—this article outlines eight key considerations.
#1 - Review the policy before making decisions and document decisions carefully
Business decisions often must be made quickly. The decision that is made and/or the way in which the decision is made, communicated or implemented is often not considered in light of potential insurance coverage or coverage litigation. However, lawsuits are already being filed against insurers that have denied business interruption claims relating to COVID-19. So, to the extent time permits, businesses and/or their attorneys should be reviewing business interruption policies before or in conjunction with making decisions.
Policy coverage, insuring agreements, conditions, exclusions and endorsements vary widely. The circumstances that are causing individual businesses to change or cease operations are unique. That means there is no one-size-fits-all approach.
Taking the time to review the applicable underlying policy can provide the best chance for an insured to successfully assert a claim.
Also, the way in which decisions are implemented and communicated can impact whether a particular claim is covered.
Some insured companies may choose to consult with brokers or other insurance professionals. While that may be beneficial to some businesses, it is important to remember that non-attorneys may not be ideally suited to provide coverage advice, may not have access to recent and ongoing legal filings and may not have errors and omission coverage applicable to providing coverage advice to clients. Insureds should consult with counsel—inside or outside—to maximize the likelihood of obtaining or protecting coverage.
#2 - Make the best business decision
Obtaining and preserving coverage is important, but it cannot be the only factor driving business decision-making. Businesses must do what is in the best interest of the business. If there is time and opportunity to confer with counsel to ensure coordination of the business decision with coverage issues, that is the best scenario. However, the business needs to do what is in the best interest of the business.
#3 - Carefully document any losses
Many businesses have never made business interruption claims. Therefore, they will be new to measuring and documenting business interruption losses. A business incurring losses should carefully document the nature, extent and cause of the losses in conjunction with accounting and legal teams. Even if there is coverage, the amount of financial recovery eventually secured may be compromised if losses are not timely, appropriately and accurately measured.
#4 - Be careful with all communications
In the context of potential future coverage litigation, insurers will demand to review all non-privileged communication relating to the changes to or cessation of business activity and the losses related to them. That creates a risk. A business may put in writing descriptions of facts or circumstances that might be taken out of context and used against the business in a coverage dispute. If in doubt, businesses should consult counsel concerning when to communicate, how best to communicate, what to communicate and how to create and maintain attorney/client privilege.
#5 - Make a timely claim
If a business has business interruption coverage and it is (or might be) suffering business interruption losses, it should make a timely claim directly to the insurer (not just the insurance broker), pursuant to the specific requirements of the applicable policy.
#6 - Carefully address insurer response
Once a claim has been reported, the insurer likely will assign an adjuster or send the claim to coverage counsel. Either way, the insurer likely will respond with its initial assessment of coverage. The insured should consult counsel before responding or choosing not to respond. The response (or lack thereof) could determine whether coverage is eventually extended, whether there is a declaratory judgment lawsuit filed and whether the insured will be asked to participate in various claims handling processes.
#7 - Beware of claims handling techniques
Even if an insurer initially extends coverage, whether under a reservation of rights or not, there are still risks to coverage. As part of processing a claim, the insurer may request (or demand) a telephonic interview, a verified completion of claim (or proof of claim) forms, or an insurer examination, which is similar to a sworn deposition. What the insured says and does can compromise coverage. Consultation with counsel is recommended.
#8 – If a claim is denied, consider whether to take legal action
If an insurer denies coverage, the insured will need to legally analyze the strength of a suit against the insurer seeking a declaratory judgment of coverage, money damages and/or invoking statutory provisions protecting insureds from certain bad faith insurance practices. Certain suits against insurers who have denied business interruption claims already have been filed in certain jurisdictions. There are many variables to consider before understanding whether a valid claim is available to the insured, and whether such a suit should be brought. The time for making the analysis is not unlimited. Any business considering its coverage position should consult counsel of its choosing to ensure that no deadlines, statutes of limitations or statutes or repose are missed.
If you have any questions about anything discussed in this article, please do not hesitate to reach out to your primary Greensfelder contact, or the author – Greg Mollett is a Greensfelder Officer whose practice focuses on commercial, real estate and environmental litigation.
For more information about issues related to and resulting from the coronavirus pandemic, please visit Greensfelder’s COVID-19 Resources page.
For further information, please see the next installment in this series: “Business Interruption Insurance and COVID-19: A Deeper Dive”