Q: It seems that many businesses are being told that they simply don’t have insurance coverage for coronavirus. Why is that?
A: My sense is that we’re seeing general assumption based on broad concepts that may not apply to all claims. For example, most insurance policies that contain some version of business interruption coverage will use the term “direct physical loss or damage” as a threshold coverage requirement. Some may assume that the coronavirus cannot meet that requirement because a virus might not cause structural damage like fire or a windstorm. But a coverage determination is not always that simple or straightforward. Most property policies are “all risk” policies designed to cover damage from any risk that is not otherwise excluded. My hope is that policyholders and their insurers will take a deeper look at the issue.
Q: Do you agree with that general position?
A: No, for at least two reasons: (1) policies can be different; and (2) claim facts will be unique. I’ve already seen some policies that should respond to losses caused by the coronavirus. By way of example, some policies provide coverage for loss caused by a government order, regardless of whether there is structural damage to the insured property. Court decisions have also interpreted “physical loss or damage” broadly to include biological contamination or even future physical loss. I try not to assume anything about a claim before I’ve seen the policy language and applied that language to the relevant facts. And finding the key facts may require investigation. What if a business was shut down because a subsequently diagnosed worker exhibited symptoms at the worksite? That fact could be material in determining coverage, depending on the particular policy language at issue. Let me be clear: I expect there will be some claims that are properly denied. A virus exclusion may be difficult to overcome. On the other hand, I just hope assumptions aren’t made without sufficient investigation of the facts, policy language, and the law.
Q: How is the insurance industry responding so far?
A: Widespread losses are difficult for insurers, to say the least, so I understand that an open checkbook will rarely be the initial reaction. What we’re seeing so far is high level messaging based on general assumption as we just discussed. We’ve also seen quick resistance to any government efforts to intervene. New Jersey has considered legislation that would invalidate certain exclusions, and the insurance industry was not open to that. Of course, the most important responses will come on individual claims. I expect we’ll be seeing those in the coming weeks, and those early responses will set the tone.
Q: Your previous article talked about the importance of tracking losses. Can you expand on that?
A: Sure. If a business loss is covered, the insurer will require details of the loss at some point during the adjustment process. While insurers have an obligation to investigate the claim, the policyholder must be cooperative. Claims also tend to go more smoothly if there’s an open dialogue instead of strategic posturing.
Even if you don’t yet know if you have coverage, tracking your losses is important. Think broadly about every way this crisis is impacting your business. Detailed accounting may be needed down the road, but basic recordkeeping and documentation of the loss is important now. You may also need that information for taxes or government relief measures. In short, continue your business accounting function as best you can and tie the numbers to causation details where you can.
Q: When should you contact your insurance company?
A: I suggest erring on the side of giving notice of a claim early, even if it may be premature. If you think you may have a covered loss, talk to your insurance professional, whether that’s your agent, broker, or a coverage lawyer. While there may be some instances where premature notice should be avoided, those instances are few and far between. You don’t want to lose coverage of a valid claim based on a late notice argument.
You should also talk to your insurance professional about how to give notice of a loss. Some policies have detailed notice requirements. It may also be helpful to think through the details you provide in the notice. I would err on the side of giving at least some of the specific details, even if you need to reserve the right to amend the notice or add details later.
Finally, make sure you’re considering all possible lines of coverage. I’ve reviewed some pollution policies that may respond to certain types of claims. Event cancellation or crisis management policy forms have broad grants of coverage with limited exclusions. And as I mentioned in my earlier article, there may be lawsuits coming soon against businesses or directors and officers for alleged negligence in responding to the virus. If that happens, liability coverage issues under CGL and D&O policies will soon follow.
Q: How will the government shutdown orders impact available coverage for businesses in MS?
A: Government orders may be helpful in that a specific order can make it easier to trigger civil authority coverage under some property policies. The reasons outlined for shutdown can be different from government to government. Some orders may clarify that shutdowns are being required because of damage or loss to properties. The use of that language in an order could be significant relative to the threshold “physical loss or damage” requirement discussed above.
Q: What about legislative action? Do you expect the state or federal governments to play a direct role in determining the scope of available insurance coverage?
A: We’ll see. We already know that governments are trying to make a difference, and it remains to be seen how that will play out. On one hand, you can expect to see arguments from the insurance industry that governments cannot alter contracts through legislation. On the other hand, governments have an impact on insurance policies all the time. I expect this to be another significant area of dispute. On Monday, Mississippi’s Department of Insurance issued a bulletin strongly encouraging insurers to consider early audits on commercial policies that base premiums on fluid numbers, such as the number of employees. I hope policyholders will take advantage of that initiative, and I was glad to see the DOI get out in front of it. Small businesses shouldn’t be paying premiums based on employees that they just had to lay off because of this pandemic.
This is an unprecedented widespread loss, so we may see unprecedented measures taken by all sides. My advice to policyholders is to try to stay in the discussion by keeping an open mind and erring on the side of giving notice of a potential claim to your insurance carrier(s).
Q: There was a lawsuit filed in New Orleans last week by the Oceana Grill restaurant. Do you expect to see more lawsuits in the near future?
A: The Oceana lawsuit was certainly an early move, and some would say it was premature. It will be interesting to follow that case as it develops. But yes, I expect we’ll start seeing significant coverage litigation in the coming months. There will be claim denials on significant losses, and that usually results in coverage litigation. On that note, I would encourage policyholders who receive a denial letter to promptly seek advice about how to respond. There are several strategic decisions that can be important (such as where to file a coverage lawsuit if necessary), and timing may be significant.
Q: How do you expect the insurance coverage issues will play out over time?
A: Resolution of coverage issues on widespread losses often takes too long. Patience will be necessary. I expect the insurance industry will be overwhelmed for months, if not years. That said, insurers, courts, and lawyers have developed helpful experience from recent catastrophic losses. Mississippi was a popular jurisdiction for the wind v. water coverage issues arising out of Hurricane Katrina. Perhaps that experience will help to move things along here. I hope so, and I hope some reasonable solutions will emerge sooner than later.
» ALEX PURVIS is a partner with Bradley in its Jackson office. He represents commercial policyholders in first and third-party insurance coverage disputes and is a fellow in the American College of Coverage Counsel. www.bradley.com. www.itpaystobecovered.com.
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