Coronavirus Insurance Coverage Information for All Hospitality Businesses
Hotels throughout the United States are struggling to survive. Nowhere is that truer than in tourist areas such as Anaheim, Orlando and along America’s beaches. The recent order from Miami Dade County Mayor Carlos Gimenez may be the death knell for some hotels. Similar orders are being issued across the country.
There may be hope for hotels and other hospitality businesses, however. First, let’s analyze the Miami – Dade order. We choose that order to serve as the starting point of this discussion because it is one of the most comprehensive. In areas of the country where hotels are already empty, these orders might actually be helpful in establishing eligibility for business loss insurance coverage.
Miami Dade Emergency Order 09-20
On March 21st, Mayor Gimenez issued an order closing all hotels, motels and vacation rentals. There are only a few exceptions including rooms for first responders and people who use motels as transitional living arrangements.
Specifically, the order exempts rooms for the following:
- healthcare professionals,
- first responders,
- national guard members, law enforcement, state or federal government employees,
- airline crewmembers,
- other essential personnel, patients, patients’ families, journalists, and others responding to the COVID-19 emergency,
- displaced residents or visitors, persons unable to return to their home due to exigent circumstances, such as fire or flood,
- persons utilizing hotels as transitional living arrangements,
- persons sheltering in hotels due to domestic violence,
- hotel employees, service providers and contractors,
- or individuals, who, for any reason, are temporarily unable to reside in their home
The Mayor’s order says that municipalities within Dade County can impose even more stringent measures.
While the exceptions to the order may appear numerous, the vast majority of people staying in Miami area hotels are vacationers and business travelers. A previous emergency order issued just two days prior on March 19th closed most businesses in the county. Even if hotels were allowed to remain open for vacationers and business travelers, we are not sure what those people would do.
Statewide, no such order exists although Florida’s Governor has dissuaded people from traveling and closed restaurants and pools. Even pools at condominiums have been ordered closed.
Coronavirus Insurance Coverage for Hotels and Hospitality Industry Businesses
The Mahany Law hospitality team has long served the legal needs of the hospitality industry, specifically hotels fighting with their lenders or loan servicers. Lately we have been receiving calls from hotels seeking to determine if they have insurance coverage for their lost revenue.
The answer is maybe. Here is what you need to know.
Many insurance policies contain provisions that protect businesses in the event of a loss or disaster causing financial loss of business. These typically provisions fall into four categories, business interruption, contingent business interruption coverage, civil or government authority coverage and contamination / communicable disease coverage. More on each below.
Most policies provide coverage on an “all risk basis”. That means losses are covered unless specifically excluded. Unfortunately, most insurance companies are in business to earn a profit. The industry has a long history of not paying claims whenever possible. That means using obscure and confusing exceptions to deny coverage. More on these exclusions below.
When an insurance company improperly denies a claim, underpays the claim or delays payment, the company is said to be engaged in “bad faith.” Insurance companies can be sued for engaging in bad faith or improperly denying claims.
Mahany Law and Judge, Lang & Katers have teamed up with several other firms to protect our hospitality industry clients and pursue coronavirus insurance claims denials nationwide. (We have accepted cases in 37 jurisdictions. By teaming up with our partners, we can serve the needs of hospitality companies wherever their properties may be located with just one call.)
Insurance Agents Are Not Your Friend
The beginning point of insurance is usually the agent who sold the policy. Most agents are helpful – they make their money on commissions from what they sell. That doesn’t mean they owe you a fiduciary duty. In most states their only duty to you is one of reasonable care. That duty of care may include letting you know when a renewal policy contains coverage changes.
Depending on your state, specific duties may include:
- Adequate Coverage. An agent owes a duty to use reasonable care to obtain adequate insurance to meet your needs.
- Misrepresentation of Coverage. An agent may not misrepresent the coverage provided in a policy.
- Duty to Procure. If you ask your agent for specific coverage, the agent has a duty to diligently search for that coverage and tell you if she can’t locate it.
- Changes in Coverage. An agent should inform you of any changes in coverage in a renewal policy.
- Other Duties. There are typically other duties that agents have that are not applicable to this discussion. These include reminding the insured of renewal deadlines and letting the insured know about the financial viability of the carrier providing the coverage.
In addition to the duties agents have to you, they also have duties to the carrier. That often creates conflicts. For examples, although agents make money from commissions, they also want to keep carriers happy and that means not offering certain types of coverage to keep loss ratios low.
We start with insurance agents because they may have an independent duty to you and can be held financially responsible for your losses if they breached their duty to you.
Business Interruption Coverage
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.
Here are two examples of business interruption clauses in a policy:
“We will pay for the actual loss of business income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.”
“This policy insures against loss resulting directly from necessary interruption of business caused by physical loss or damage by a peril not otherwise excluded herein to insured property of the Insured, all subject to the terms and conditions of this policy.”
Notice how in both examples, the coverage is triggered by a physical loss. That requirement is typical in most business interruption insurance. Think of a fire at a motel. While repairs are being made you can make a claim for lost revenues.
Is Coronavirus Considered a “Physical Loss” as Required by My Insurance?
We know what the insurance company is likely to say. Absent a fire, wind damage to the roof, flood or collapse, carriers are likely to say there is no physical loss. We disagree.
Although we are learning about coronavirus on a daily basis, we know that the virus can remain on surfaces for days. If you had to close and disinfect the property because a guest tested positive on your cruise ship, the odds of winning an insurance bad faith loss against your insurance carrier are greatly improved.
Assuming your business interruption coverage is tied to physical loss, you may face an uphill battle in getting paid on your claim. Much depends on the actual policy language, however. Courts have said that odors and fumes that render a property uninhabitable constitute a physical loss.
Contingent Business Interruption Coverage
Contingent business interruption coverage protects against lost revenues resulting from damage to the property of a person on whom you depend for business. Here the disruption is to a third party. Typically, this coverage kicks in when a loss to a supplier prevents you from conducting business. An example might be an automaker that produces electric vehicles. If China halts the shipment of lithium batteries, the car company may be forced to stop its production line.
Contingent business interruption insurance often takes many forms and often has what are called “sublimits” meaning damages are capped for a fixed time period or fixed dollar amount.
Civil Authority Coverage (Government Authority Coverage)
Civil authority coverage is sometimes called “public authority” or “government authority” coverage. This coverage pays for lost business income when a government authority blocks access to your property.
Here is an example of civil authority coverage in a policy:
“This policy insures against loss resulting directly from the necessary interruption of business caused by damage to or destruction of the Insured Locations.
“This section is specifically extended to cover a situation when access to the Insured Locations is prohibited by order of civil authority as a direct result of damage to adjacent premises, not exceeding, however, two (2) consecutive weeks…”
Once again there is a suggestion that there must be physical loss although in the example above, the clause merely says, “damage or destruction.” One can certainly argue that the contamination from coronavirus is damage.
In cases where governors or local authorities have issued actual shelter in place orders, quarantines or orders closing hotels, the case for lost income coverage is better. As of this writing, in many jurisdictions, authorities are simply recommending people practice social distancing or avoid gatherings of 10 or more people.
Once again, the actual policy language becomes critical as well as the orders and recommendations from government authorities.
Remember that coronavirus claims are new. We have no direct court precedent to guide us. (We also know that insurance companies are prone to deny claims.) Although we won’t see any COVID-19 rulings for several years, there is plenty of case law involving evacuations from floods and even 9/11 related closures.
After 9/11, many New York City businesses made claims after they were forced to close. Authorities shut down several blocks around the Trade Center for weeks as rescue efforts were underway.
Those affected businesses were generally eligible for compensation because there was physical damage to adjacent structures. United Airlines, however, was denied coverage for loss of business when the Reagan National Airport was closed because the closure was based on fear of future attacks and not on damage to adjacent structures or the airport itself.
The takeaway is that often there must be a direct connection between the claim and a government order. Guidance from the CDC to stay home is much different from Mayor Gimenez’s order closing hotels. As of March 23rd, USA Today reports mandatory shelter-in-place orders in several jurisdictions:
- Delaware – Order by Gov. John Carney
- Kentucky – Order Gov. Andy Beshear
- Louisiana – Order by Gov. John Bel Edwards
- Ohio – Order by Gov Mike DeWine
- St. Louis and Kansas City
- New Orleans
- San Miguel County, Colorado
- Athens-Clarke County, Georgia
- Blaine County, Idaho.
We also add to that list:
- New York – Order by Gov. Andrew Cuomo
- California – Order by Gavin Newsom
- Illinois – Order by Gov. J.B. Pritzker
- Michigan – Order by Gretchen Whitmer
- Miami – Dade County, Florida
The Michigan order was released as this post was being written. Additional orders are likely.
Contamination and Communicable Disease Coverage
After the Ebola scare in 2014, Lloyd’s began offering contamination and communicable disease coverage. Some policies call this “pandemic disease business interruption insurance.” Such coverage is not typical and unless you asked your agent for such coverage, you probably don’t have it.
Speaking of pandemic coverage, we are also asked, “Can I still buy pandemic coverage?” The answer is unfortunately no but you can purchase insurance for future pandemics.
Other Possible Coronavirus Insurance Coverages
We have mostly discussed business interruption insurance, contingent business interruption coverage, and civil authority coverage. Many hospitality businesses may also have event cancellation policies. We are happy to discuss possible claims but that event specific coverage is outside this post.
Beware the Exclusions
We began this post by saying “Most policies provide coverage on an all risk basis. That means losses are covered unless specifically excluded.” Now it is time to discuss those exclusions.
After the SARS scare in 2002, insurance companies began adding exclusions for SARS and other identified diseases.
In 2006, a leading insurance services company promulgated a standard virus exclusion for business lost income coverages. It says, “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
That language probably excludes coronavirus coverage but not all insurance companies have adopted it. In fact, we just read one exclusion that excludes specific viruses and bacteria such as SARS and anthrax. We have also seen general exclusions that appear to be aimed at mold and fungus.
Many policies also have exclusions for pollutants. We think of pollutants as inorganic and not live viruses. Desperate insurance companies may try to use these exclusions to avoid paying coronavirus insurance claims but we think the law is on our side.
Once again, you need trained eyes to determine if your coronavirus related claim is covered or excluded.
My Hotel is Closed – How Do I Determine if I Have Insurance Coverage for My Losses?
The first step is examining the policy. Many business owners have copies of their declaration sheet but not the policy itself. A quick call to your agent should get you a copy of the full policy. (Policies may also be available online too.)
If there is an exclusion that might prevent coverage, we may ask you to obtain copies of your old policies. Remember that your agent has a duty to advise you of changes in coverage. If exclusion wasn’t in your original policy but is in your current policy, the agent could be responsible if she failed to warn you of the changes in the policy.
Next keep accurate records of all expenses and lost revenues associated with coronavirus losses. It is not enough to guess. If you incur expenses in disinfecting between guests, keep track of the additional time spent on cleaning. (Remember, if you have someone with coronavirus in your facility, you probably have actual damage or physical loss under the policy.)
If a labor agreement requires you to give certain advance notice before laying off employees, track those expenses.
Next, when you call to report your loss, keep careful notes. Claims adjusters, like insurance agents, have dual loyalties. In fact, claims adjusters – even those that claim to be “independent adjusters – have a strong loyalty to the insurance companies that pay for their services. It is important to document everything you say and what they say in return. [If you wish, we will also handle the claims process for you.]
Should the adjuster deny the claim, ask him or her to put it in writing along with their reasons. In most states you are entitled to a written denial and the reasons for your denial. Also remember that the denial starts the clock for how much time you have to file a lawsuit against the carrier.
Was Your Coronavirus Insurance Claim Wrongfully Denied?
If your coronavirus business loss insurance claim was wrongfully denied, we can help. We have years of experience in helping hotels and hospitality businesses. Our hospitality industry lawyers can help you navigate the complex world of claims, so-called “independent adjusters” and insurance bad faith claims. We are aggressive and not afraid of going toe-to-toe with big insurance companies and their lawyers.
To learn more, visit our insurance bad faith page. Need help reviewing your policy or pursuing a claim for losses to your business? Contact us online, by email or by phone at 202-800-9791. We have lawyers throughout the United States and accept cases nationally.
REPRINT OF THE MIAMI -DATE ORDER REGARDING HOTELS
MIAMI-DADE COUNTY EMERGENCY ORDER 09-20
WHEREAS, section 252.38(3)(a), Florida Statutes, gives political subdivisions the authority to declare and enact a State of Local Emergency for a period of up to seven days, thereby waiving the procedures and formalities otherwise required of the political subdivision by law; and
WHEREAS, on March 1, 2020, the Governor of Florida issued Executive Order Number 20-51, directing the State Health Officer and Surgeon General to declare a Public Health Emergency due to the discovery of COVID-19/novel Coronavirus in Florida; and
WHEREAS, on March 9, 2020, the Governor of Florida issued Executive Order Number 20-52, declaring a State of Emergency for the state of Florida related to COVID-19/novel Coronavirus; and
WHEREAS, on March 12, 2020, the County Mayor declared a State of Emergency for all of Miami-Dade County; and
WHEREAS, COVID-19/novel Coronavirus poses a health risk to Miami-Dade County residents, particularly elderly residents and those who are immunosuppressed or otherwise have high-risk medical conditions; and
WHEREAS, minimization of contact is necessary to avoid risk of COVID-19 infection for the residents of the County; and
WHEREAS, the Centers for Disease Control (CDC) has issued guidance entitled “15 Days to Slow the Spread,” encouraging social distancing and maintaining a 6 foot separation between residents to slow the spread of infection and that events with more than ten attendees either be cancelled or held virtually; and
WHEREAS, the CDC guidelines are based upon the amount of community spread within a community and become more stringent where there is minimal to moderate or substantial community spread; and
WHEREAS, numerous persons have congregated in Miami-Dade County for spring break and other social activities, and are congregating in and around hotels without observing the social distancing guidelines as recommended by the CDC; and
WHEREAS, it is in the best interests of Miami-Dade County to prevent crowds of people inside and around hotels, as COVID-19 continues to spread through both the local community and throughout the nation; and
WHEREAS, hotels, motels, and short-term vacation rentals and other commercial lodging establishments may serve as shelters or housing options for healthcare professionals, first responders, national guard members, law enforcement, state or federal government employees, airline crewmembers, other essential personnel, patients, patients’ families, journalists, and others responding to the COVID-19 emergency, or displaced residents or visitors, persons unable to return to their home due to exigent circumstances, such as fire or flood, persons utilizing hotels as transitional living arrangements, persons sheltering in hotels due to domestic violence, hotel employees, service providers and contractors, or individuals, who, for any reason, are temporarily unable to reside in their home; and
WHEREAS, some Miami-Dade County residents rely on hotels and motels for weekly and monthly long-term living arrangements and the closure of commercial lodging establishments would negatively affect their living arrangements; and
WHEREAS, section 252.46, Florida Statutes, directs local governments to act consistent with Federal recommendations in responding to emergency situations; and
WHEREAS, sections 8B-7(2)(e) and (o) of the Code of Miami-Dade County (” Code”)authorize the County Mayor to limit the movement of persons inside Miami-Dade County in order to safeguard life and health,
THEREFORE, as County Mayor of Miami-Dade County, I hereby order:
- To aid the availability of hotel rooms for (1) healthcare professionals, (2) first responders, (3)National Guard members, (4) law enforcement (5) state or federal government employees, (6) airline crewmembers, (7) patients, (8) patients’ families, (9) journalists, (10) others responding to COVID-19, (11) displaced residents or visitors, (12) persons unable to return their home due to COVID-19 impacts on travel, (13) persons who must vacate their homes due to exigent circumstances, such as fire or flood, (14) persons utilizing hotels as transitional living arrangements, (15) persons sheltering in hotels due to domestic violence, (16) hotel employees, service providers, and contractors, or (17) individuals who, for any reason, are temporarily unable to reside in their home (“Essential Lodgers”), the following restrictions shall apply to commercial lodging establishments: (a)Hotels, motels, and other commercial lodging establishments shall not accept new reservations for persons other than Essential Lodgers and (b) Hotels, motels, and other commercial lodging establishments may accept reservations for new Essential Lodgers.
- Notwithstanding section 33-28(D)(3) of the Code,” the maximum daytime and overnight occupancy for short-term vacation rentals shall be up to a maximum of two persons per bedroom plus two additional persons per property not to exceed a maximum of ten persons. New rental agreements shall not be entered into on a nightly or weekly basis, effective March 23,2020.
- The provisions of this order shall serve as minimum Municipalities may impose more stringent standards within their jurisdictions.
- This order shall be effective
- The County Mayor may amend the provisions of paragraphs 1 or 2 by written notice to the County Clerk.
- This order shall expire upon the expiration of the existing Miami-Dade County State of Local Emergency, except that if such State of Local Emergency is extended, this order shall also be deemed to extend for the duration of such extension. This order may be cancelled earlier by action of the County
- This order shall be provided to all appropriate media consistent with the requirements of section *B-7(2)(n) of the Code.
ENACTED by the County Mayor 02/21/2020