Insurance Coverage For Business Interruption Due to Coronavirus

The coronavirus or Covid-19 pandemic has led to unprecedented business closures and lost income.  Many business owners want to know if their business interruption coverage provides insurance coverage for loss of income related to the government mandated shutdowns.  The answer is not clear cut and varies from State to State.  The bottom line is that the answer lies in both (a) a careful reading of your policy language and (b) how Ohio courts will interpret key policy provisions.

In early 2000, the SARS epidemic caught insurers attention due to its potential scope.  In response, insurers inserted a provision into general liability policies that excludes reimbursement for economic loss due to business interruptions caused by an otherwise insurable event unless the loss is accompanied by "physical damage to property."  This  provision was intended to exclude losses caused by the outbreak of a communicable disease.  However, the policy language that was used may not clearly exclude such losses. Insurers will have to answer whether a virus that requires business lockdown, employee shortages and supply chain disruptions equates to physical damage.  The issue may depend on specific facts, such as was the business shut down by government order or due to positive testing of an employee.  If Ohio courts determine that the language is ambiguous, the tie goes to the insured. 

Even if courts find that the exclusionary language is clear, coverage may still exist.  First, the policy may contain express provisions that provide business interruption coverage without requiring concurrent physical damage.  Second, there are pending legislative proposals to retroactively define the term "physical damage" to include damage wrought by a microscopic contaminant.  Typically, retroactive laws violate due process, so such legislation would likely face stiff opposition in the courts, unless accompanied with a bailout provision.  

There are two additional provisions that might apply.  One common provision excludes losses resulting from microbial contamination,  Again, a careful reading of the policy is required.  Is virus specified?  One policy that I reviewed excluded losses caused by "bacteria, fungi, mold and other microbes."  A virus is not a microbe, so the language does not apply.   Another common provision provides, or excludes, coverage for losses caused by civil orders.  These provisions require careful review of the both the policy and the scope of the government mandated lockdown.

If you need help reviewing a policy or filing a declaratory judgment action to determine your rights under a policy, do not hestate to call us.

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