While the full extent of the economic toll of the COVID-19 pandemic remains uncertain, there can be no doubt that business has been "interrupted". However, whether that "interruption" is insured, is another question altogether.
As has been reported in countless news bulletins and articles in the past few months, the typical trigger for business interruption coverage is physical damage. What remains to be seen is whether the presence of Covid-19 on a surface will satisfy that prerequisite; a question that has already spawned coverage litigation in the US (see, for example Cajun Conti v. Lloyd's 1). However, even if a court decides that the answer to that question is "yes", there is a distinction, with a difference, between the presence of Covid-19 being considered physical damage to property and an individual insured establishing that there was, in fact, Covid-19 present at their establishment. It is not unreasonable, or unexpected, for an insurer to expect an insured to prove their loss.
However, in unprecedented times, governments may take unprecedented actions.
For example, the New Jersey and Ohio state legislatures have both introduced bills that, if passed, would effectively deem any business interruption insurance policy that was in force when the Covid-19 state of emergency was declared, and which was issued to a business with fewer than 100 eligible employees, to include coverage for business interruption losses due to the pandemic, even where such coverage is not explicitly included and, presumably, even where such coverage is explicitly excluded (see, for example, the ISO form for "Exclusion for Loss Due To Virus Or Bacteria"). 234
While both bills provide that an insurer who pays a claim under the deeming provision may apply for "relief and reimbursement", the availability of "relief and reimbursement" for insurers will not eliminate the basic coverage issue of whether the presence of Covid-19 satisfies a policy's physical damage prerequisite. It may just mean that insurers are having this debate with their state regulators as opposed to their policyholders.
It is also notable that the "relief and reimbursement" funds will come –at least in part– from an assessment levied on insurers who write business in the state. That is, these deeming provisions (if passed) will impact every insurer– whether they wrote business interruption, or not.
To date, none of the Canadian provinces have intimated that something similar is being considered here. However, in times of crisis, the threat of government interference is not unknown to Canadians. After the Fort McMurray wildfire in 2016, the Alberta government urged the insurance industry to extend the time that insureds had to file claims against them. In making its plea to the industry, the Alberta government was clear that it would amend its legislation if insurers did not agree. As stated by then President of the Treasury Board and Minister of Finance, Joe Ceci: "Should a company choose not to grant this extension, our government is ready and prepared to amend the legislation to ensure residents are being treated fairly and given the additional year to resolve their claims or file legal action." 5
While there may seem a wide delta between legislating the extension of a filing deadline and paying otherwise uncovered claims, the one thing we can all agree on is that we are in uncharted territory.
Clyde & Co has deep expertise in providing the insurance industry with coverage and wording advice. Should you have any questions or concerns with respect to the COVID-19 pandemic and your policy wordings, please contact Heather at heather.gray@clydeco.com.
Footnotes
1 Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd's London, et al., No. 2020-02558, complaint filed (La. Dist. Ct., Orleans Parish Mar. 16, 2020) (Cajun Conti v. Lloyd's).
2 A. 3844, 219th Leg. (N.J. 2020).
3 H.B. No. 589, 113th Gen. Assemb. (Ohio, 2020).
4 ISO form CP 01 40 07 06.
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