Business Interruption Insurance and COVID-19 Closures
March 23, 2020
Many business owners who are facing closure or precipitous revenue drops due to the recent pandemic are asking if their insurance policies provide any coverage for this new and strange situation.
The short answer is: we don’t know.
Does COVID-10 cause ‘direct physical damage’?
At Swerling Milton Winnick (SMW), we are used to catastrophes and helping business owners navigate the insurance and claims process. However, this situation is unlike any we’ve ever seen. Carriers across the country are as shocked as business owners are over what is happening across the state and country. Our industry sources tell us that insurance carriers will likely deny all COVID-19 losses.
Whatever justification may exist for broad coverage denials, it’s important to remember that most insurance policies require direct physical damage to covered property. The key question for the insurance industry is: does this virus count as direct physical damage? The insurance attorneys we’re consulting with are all working to see if there is an argument that would afford coverage as a result of this pandemic.
While we are seeing policies that do not exclude viruses as a covered cause of loss, that still doesn’t mean that carriers will pay up in these situations. This situation is unique, and carriers will resist accepting coverage or paying claims until they know the full scope and coverage issues.
Does ‘Civil Authority’ coverage apply?
Another question a lot of business owners have is about civil authority coverage – especially after many business owners utilized this coverage following the Boston Marathon Bombings. Civil authority is a unique coverage, and it is very specific. Coverage requires 1) property; that is 2) in imminent danger of damage by a loss covered under your policy; and 3) access to your property that is prohibited by a governmental action. Again, we’re back to the question of whether or not this virus is causing direct physical damage. (To read more about civil authority coverage please read our blog from November 2018)
Around the country, we’re seeing several interesting developments with business interruption insurance. In New York, carriers are being asked to send letters to all business owners outlining what their business interruption insurance would cover regarding COVID-19. We are also seeing lawsuits filed in Louisiana, and New Jersey is contemplating having insurance companies pay business interruption claims. To read more about New York’s order please visit our blog here.
As accountants with longstanding relationships, business clients will often turn to you for advice when things happen. We at SMW would like to offer our assistance in helping to keep you and your clients up to date with this particular situation. We will be sending updates to the MSCPA as we receive them from our sources so they can pass them along to you. SMW would also like to offer you and your clients, under no obligation, a review of your insurance policies for coverage. Please have them contact Mindi Labella, CPA at 781-416-1000 x110 or by email at mindi@swerling.com.
**SMW is not giving legal advice. If you have legal questions regarding your insurance policy you should counsel from your attorney or agent.