by Anita Schnee, Attorney at Law
If you are one of the myriad small-business owners who are reeling from lost income in the Covid-19 shut-down, you might hope that your all-risk insurance policy could cover you for the interruption to your business.
Unfortunately, you will face stiff opposition from your carrier. Insurance companies have been denying a torrent of claims for Covid business-interruption coverage. A corresponding torrent of small business owners have sued the carriers, and class action litigation has begun across the nation.
You could be a part of that effort. Bring us your policy. We will review it to see whether or how you should file a claim, or whether, if you’ve been denied, you could be included in the litigation.
“Business-interruption” clauses are standard in all-risk commercial policies. These provisions supposedly obligate insurers to pay for losses where business has been interrupted involuntarily, or where a civil authority order restricts or prohibits access to property due to a dangerous physical condition. That sounds like Covid losses might be covered. Instead, though, many insurers are refusing to pay, arguing that they are liable for physical damage to property only.
Legislators, including some in the U.S. House of Representatives and in some states, have been unsuccessful so far in passing laws requiring insurers to pay business owners for Covid losses. Those who oppose pay-out include the U.S. Treasury Department and, predictably, insurance trade groups and some state regulators. For example, the Arkansas Insurance Department issued a bulletin on March 23, 2020, stating, in bold type and underlined, that business interruption should be covered only if property were physically damaged and that disease is “NOT an insured peril unless added by endorsement.”
But even disease endorsements don’t assure payment. This kind of endorsement became important after the 2006 Ebola scare. Now, however, the stated ground for denial in some cases is that the Covid-19 illness (an elision of “COrona VIrus Disease of 2019”) isn’t specifically listed in the endorsements – despite that the threat from this “novel” coronavirus didn’t even exist until few months ago.
Don’t give up. In the past, insurance companies have been defeated in court despite language in standard policies. Years ago, claimants successfully battled insurers’ efforts to exclude pollution from coverage.
Before insurers are permitted to add clauses to standard policies, they must first obtain the approval of state regulators. The insurance industry’s record in the pollution instance is far from stellar.
For example, in 1993 the New Jersey Supreme Court forced insurers to cover gradual pollution under a liability policy that purportedly excluded that kind of damage, in Morton International Inc. v. General Accident Insurance Co. The court rejected the clause at issue as unenforceable and insurers were sharply rebuked for having provided state regulators with information that was “simply untrue,” “astonishing . . . inaccurate and misleading,” “simply . . . indefensible,” and “perilously close to deception.” Instead, the Morton court forced the carrier to pay, in accordance with reasonable expectations based on the insurance industry’s assurances during the regulatory approval process.
So in Covid cases, it may be important to look behind what the policy says on its face. Call us to take a look at your contract.
