Many small businesses in North Carolina are wondering if they will survive the temporary closures or other losses required by Governor Roy Cooper's Executive Stay at Home Order. In an effort to survive, businesses are rightfully applying for government stimulus programs or other financing, negotiating with creditors, and looking to cut expenses.
These are important steps all businesses should consider as they attempt to remain solvent pending a return to some level of normalcy. However, another vital step many businesses may not have sufficiently considered is whether their commercial property insurance provides business interruption coverage for losses incurred due to COVID-19.
Is My North Carolina Business Covered?
There is no easy answer to this question. Given the amount of money that could be at stake, and the impact this could have on the survival of your business, it is worthy of close scrutiny. If there is any chance that coverage may be available, a claim should be filed.
An internet search on this issue will reveal various opinions suggesting that coverage is unlikely. It seems voices from the insurance industry are attempting to convince businesses that coverage is unavailable to preempt claims from even being filed. The reality is coverage depends on the law of each state, the specific factual circumstances, and most importantly, the specific language of the policy.
It Is Worth A Legal Deep Dive Into Your Policy
Businesses should not assume there is no business interruption coverage without undertaking a detailed legal analysis of the specific policy.
It is true that most commercial property insurance policies require some level of physical damage to property to trigger business interruption insurance. This would apply, for example, to provide coverage for loss of profits incurred after a fire or flood.
Do You Have Civil Authority Coverage?
Many commercial property policies also provide 'Civil Authority' coverage. Such policies offer business interruption insurance where access to the business is prohibited due to an order of civil authorities. Governor Cooper's Executive Order would seem to meet this requirement. Civil Authority coverage may also require some level of physical damage. But again, this depends on the language of the policy.
Do You Have Coverage for Loss Of Ingress or Egress?
Another potential avenue for coverage may be found under a "Loss of Ingress or Egress" provision. This may provide coverage based upon the inability of customers or employees to access the business' premises.
In Fountain Powerboat Industries, Inc. v. Reliance Ins. Co., 119 F.Supp.2d 552 (E.D.N.C. 2000), the Eastern District of North Carolina held that a business was entitled to coverage for losses it incurred when the road leading to its premises was closed following a hurricane. The insurer argued the business was required to prove some element of physical damage in order to trigger coverage. However, the court held this was not required under the Loss of Ingress or Egress provision.
Be Aware of the Virus Exclusion
If the insuring language of a policy is broad enough to grant coverage, businesses may yet be faced with an exclusion that would prevent coverage for losses incurred due to COVID-19. Many policies now contain a "Virus Exclusion" that specifically excludes from coverage any loss caused by or resulting from a virus. This would likely exclude coverage for business interruption due to COVID-19. But again, it is important to thoroughly review the policy to confirm whether this exclusion was included and whether the specific language applies.
Provisions that exclude coverage are interpreted narrowly and in favor of coverage in North Carolina. Therefore, if there is any ambiguity as to whether a loss is excluded, it should be interpreted in favor of the insured.
Make sure you do not leave money on the table. Consult with an attorney to analyze the fine print of your policy and understand the scope of your coverage.