Business Interruption Claims in Commercial Business Policies

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Business interruption insurance is especially important for small businesses and companies that rely on physical locations to carry out day-to-day activities associated with their organizations.  Our business and healthcare law firm represents medical practices and other businesses with regard to insurance coverage disputes.  Filing a business interruption claim can be the best way to recover income loss and damages that occur as a result of a reduction or cessation of business operations. As the COVID-19 pandemic, continues to create disruption and financial uncertainty for business owners, insurance companies’ reluctance to cover interruption claims has initiated state responses to protect businesses from losses stemming from closures, seizure of ordinary business operations, and supply chain interruption.

Georgia-based Insurance Coverage and Business Litigation Attorneys

A March 6 article in the Wall Street Journal reported that U.S. insurance companies already have rejected claims submitted for coverage of business interruption related to the Coronavirus.

In the early 2000s, in response to the SARS outbreak, insurance carriers began to exclude communicable diseases from ordinary coverage. With that consideration, coverage for losses related to the recent Coronavirus outbreak may be influenced by detailed language placement of business interruption coverage in basic policy terms, or in a policy endorsement. A technicality in the language of a policy may limit a company’s ability to recover. Often, business interruption policies only cover losses related to diseases when specified in an endorsement.

Additional factors to consider in contextualizing business interruption policies and preparation of claims: Usually, business interruption insurance is provided with property insurance. Under common law, in some circumstances, contamination has been considered physical damage. One of the largest issues that today’s policyholders may face is showing that the impact of the Coronavirus was the cause of such losses, versus other changes or a general downturn in business.

Triggers for business interruption claims may include supply chain losses, ordered closures of workplaces, and prohibitions of all public gatherings and nonessential business activities. Insurance companies may raise defenses of exclusions for pollution or contamination, waiting periods before coverage is triggered, sub-limits for coverage, and time limitations for recovery. As impacts of the Coronavirus expand, policyholders should fully understand the extent of their coverage by careful study of policy terms.

Currently, states are discussing methods to promote economic recovery for businesses that have experienced financial loss related to the epidemic. In New Jersey, for example, lawmakers debated a bill that would force insurance companies to cover businesses interruption claims that stem from the economic impacts of COVID-19. New York has instructed insurers to provide an explanation of benefits, including the potential impact of the illness on business operations.

In Georgia, no such bill has been passed, but other assistance mechanisms have been established. For example, the Department of Insurance has directed property and casualty insurers not to cancel any insurance policies for non-payment, particularly those dealing with business interruption or business income coverage, for the next 60 days.

The department also is working to expedite the review process for insurance carriers attempting to offer coverage specifically for losses related to the recent pandemic, and to waive temporarily continuing education requirements for agents, to ensure that agents are available and licensed to handle the influx of anticipated claims. The state’s goal is to increase the availability of business interruption coverage for businesses. At this time, Georgia has not mandated insurance companies to cover for Coronavirus losses. Therefore, it is crucial for businesses to identify every possible basis for recovery under your company’s existing policy.

Some Practical Advice in Addressing Your Company’s Economic Losses and Business Disruption Coverage:

Create a log of information and closely catalog expenses and losses. Work with your legal counsel to examine your commercial insurance policy for provisions covering economic losses. Make note of virus exclusions. While some policies may have exclusions, other policies may contain pertinent civil authority provisions. Since there have been recent government directives prohibiting large gatherings, a civil authority provision may cover losses that are related to a location that is included in the policy or a dependent property. Some examples of dependent properties are recipient locations, contributing locations, or manufacturing facilities. Filing a proof of loss claim under your existing commercial business policy can help protect your rights. Experienced legal counsel can ensure that a claim is in accord with the existing insurance policy, and add credibility to the submission. When filing a claim, an insurer will likely ask for: monthly and daily production reports, profit and loss statements, invoices, purchase orders, and monthly inventory. Look closely at your commercial insurance policy for provisions covering such losses. It is expected that insurance companies may try to deny claims submitted that are in response to the recent outbreak.  The legality of claims denial should be examined carefully. Reviewing your existing policy with knowledgeable legal counsel can help avoid delays or improper denials.

Medical Practices and other businesses will continue to face major obstacles as they work to return to normal, but filing a timely and proper business disruption claim should not be an additional burden. Our business and healthcare law firm represents medical practices and healthcare business owners to hold insurance companies responsible for covering catastrophic business losses. If you have questions about this post, contact us at (404) 685-1662 (Atlanta) or (706) 722-7886 (Augusta), or by email, info@hamillittle.com. You may learn more about our law firm by visiting www.hamillittle.com.