Does My insurance Cover Losses from Coronavirus?
[Updated March 2020] With over 1000 confirmed cases of Coronavirus in the United States (as of March 11, 2020), insurance companies are already scrambling to make sure they don’t have to pay for business interruption caused by the coronavirus outbreak.
Business owners pay for business interruption insurance for years and years hoping they never need that coverage. When disaster strikes, however, it isn’t unusual for insurance companies to deny claims without any justification. Not every claims denial is evidence of bad faith but if you have been treated unfairly or been denied coverage, you may have a bad faith claim against your carrier.
In this post we examine the developing coronavirus problem and what you should do if your carrier denies a coronavirus related claim. (For a historical reference, we will also look at how insurance companies reacted to the SARS outbreak nearly two decades ago. Hint, they didn’t do a good job protecting their insureds.)
Is your insurance company disputing, delaying, or denying your business interruption claim?
Have you taken a financial loss because of your insurance company refused to pay on a business loss claim related to coronavirus?
There is a general body of law in the United States known as Insurance Bad Faith. Although the law varies widely state by state, there are common elements to these claims. As a general definition, insurance bad faith refers to an insurance company’s attempt to renege on its obligations to its clients, either through refusal to pay a policyholder’s legitimate claim or investigate and process a policyholder’s claim within a reasonable period. In other words, refusing to pay or unreasonably delaying payment can both be bad faith.
In many states, insurance bad faith are common law claims. Other states have statutory schemes. For purposes of this post, we are lumping all claims together. If you believe you have been treated unfairly, contact us and we can help figure out the law applicable to your situation.
Common examples of insurance bad faith include:
- Intentional underpayment of a claim
- Wrongful denial of a claim
- Failure to provide a reasonable explanation for the denial of a claim
- Failure to properly investigate a claim
- Failure to timely investigate or pay a claim
- Misrepresenting provisions within the insurance policy
Insurance companies know that business owners with business interruption coverage are most vulnerable after a major loss of business or an operational shutdown. Unfortunately, this is when insurance companies are most likely to exploit their insureds.
Coronavirus and Loss of Income / Business Interruption
Already, McDonalds has closed 300 restaurants in China. Starbucks has reportedly closed 2000 cafes. Delta, United and American Airlines have canceled flights to and from China. Today Reuters reported the coronavirus outbreak will result in a $10.3 billion loss in Chinese tourism spending in the United States. If you have recently been to Yellowstone, Niagara Falls or the Grand Canyon, it seems like many of the tourists soaking up the sights are from China.
So what happens when those tourists can no longer come to the United States? What happens when an employee in the U.S. is diagnosed with coronavirus and all the other employees are afraid to come to work (and who is going to pay to disinfect the business)? What happens if your business has a factory in Hubei Province?
Take a look at pictures from Wuhan and its obvious that residents are worried and staying in their homes. The normally packed streets are empty.
Business Interruption Insurance
Business interruption insurance (also known as business income insurance) is an insurance product that covers the loss of income that a business suffers after a disaster. Think of a fire or flood at a restaurant. If restaurant owner had business interruption insurance, the loss of income would be covered while repairs were made.
Typically, business loss insurance is not a separate policy. It is an add on to property insurance or sold as part of a package.
SARS and Lessons Learned
Let’s turn back the clock to 2003. That is the year the World Health Organization declared SARS an epidemic. 8000 people were infected, mostly from China but 25 other countries reported at least one case.
Although nowhere as widespread as coronavirus is today, it didn’t take long before insurance companies were figuring out ways to deny coverage. Chicago based Aon issued a white paper to risk managers suggesting that pollution and mold exclusions in commercial general liability and property policies would most likely bar coverage for SARS.
Does My Policy Cover Coronavirus Claims?
We are aware of no reported courts issuing coverage decisions after the SARS outbreak. The losses from that epidemic were much smaller and of short duration. While everyone hopes the coronavirus outbreak will also be short, already the losses are being measured in the billions of dollars. The big question isn’t whether there will be coronavirus claims, it is how will insurance companies respond to these claims.
What we do know is that after the SARS scare, some insurance companies began quietly adding epidemic exclusions to their policies. And many other policies are silent on epidemic claims. (Often insurance companies will interpret their policy to mean that all losses are excluded unless specifically identified in the policy.)
Many business interruption policies are triggered by property damage claims. Common examples are fires and floods. Other policies are triggered by government ordered shutdowns but thus far, the shutdowns that have occurred are based on government advisories and not formal orders.
Public Authority / Civil Authority Coverage
Separate from business interruption policies are traditional property insurance policies. Many of these policies contain some form of “civil authority” coverage which provides coverage if a public authority such as city or federal agency blocks access to one’s property. Many such policies, however, limit this coverage to physical loss or damage to physical property. An example could be a business ordered to close after a local dam is damaged in a storm or a factory fire fills the air with toxic fumes.
Civil authority coverage might cover a coronavirus claim. One really must carefully interpret the precise wording of the policy. For example, can one argue that property rendered unfit for public gatherings because of contamination qualifies as a physical loss? What if the CDC quarantines a cruise ship partially out of fears that the ship itself can spread the virus? Depending on the precise wording of the policy, there may be coverage.
Force Majeure Clauses
Most insurance policies have a force majeure clause.Force majeure is a legal term meaning an unforseeable event prevented fulfillment of a contract. Riots, earthquakes and hurricanes are common examples.
Force majeure clauses have been litigated thousands of time. There is a large amount of case law on how these provisions should be interpreted. The language in these clauses also varies widely. For example, some clauses only kick in when a party to the contract is prevented from performance while others kick in if performance is hindered or delayed.
For example, suppose you own a manufacturing company. Your widget plant relies on parts from China. Lets also assume you have business interruption coverage. When you can’t fulfill order because you can’t get parts, you ask you make a claim with your carrier. Is that loss covered? Once again, it really depends on the precise wording of the contract. In our experience, many carriers will interpret the policy in their favor meaning they will seek to deny coverage.
What does all of this mean? If you are a business owner and have income interruption or business loss insurance, don’t expect an easy time from your carrier. Now is the time to carefully study your policy. If you make a claim and are denied, don’t automatically accept the carrier’s rejection. Depending on the language in the policies, you may still be covered.
We know many insurance companies are most reluctant to pay claims after a major disaster. Instead of worrying about their customers, they become more focused on dividend payments and employee bonuses.
Bad faith insurance companies often rely on “independent adjusters” to evaluate claims. Don’t be fooled, these independent adjusters are anything but independent. They are hired because of their loyalty to the insurance company that pays their fees.
For more information on bad faith claims, visit our insurance bad faith information page. Ready to see if you have a case? Contact Mahany Law today online, by email or by phone at 202-800-9791. We do not charge for consultations.
Cases considered with a minimum loss of $1 million or more.