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Commercial Business Insurance Coverage and COVID-19

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California businesses, small and large, are navigating the ups and downs of financial insecurity during COVID-19 (coronavirus) while federal and state subsidy and loan disbursements are still in process. Review your commercial insurance policies and the types of claims your business can make.

Commercial Business Insurance

Commercial business insurance policies may cover financial shortfalls associated with COVID-19 (coronavirus). Language of each policy may be different. All policies contain exclusions related to loss by virus, bacteria, mold, microorganisms, contamination, pollution, etc. but it is imperative to consult with an attorney to determine the best course of action for your business. So far, the case law has been fluid and states are considering legislation to force insurance carriers to cover COVID-19 related loss regardless of exclusionary clauses. Regardless, filing for a claim could result in a settlement.

Business Income Coverage

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In order to trigger the Business Income Coverage, (1) the suspension of business operations must be cause by direct physical loss of or damage to the property, and (2) the loss or damage must be caused by or a result from one of the Covered Causes of Loss. A contamination of a virus could prevent the property from being used for its intended purpose. The fear of the presence of the virus could be enough to invoke coverage. This leaves room for potential denial by carrier if there is no way to prove the presence of the contamination on the premise.

  • In Motorists Mutual Insurance Co. v. Hardinger, 131 F. App’x 823, 827 (3d Cir. 2015), when considering an infestation of a home with E coli bacteria, the court held that “a genuine issue of fact (exists) whether the functionality of the property was nearly eliminated or destroyed, or whether their property was made useless or uninhabitable.”
  • In Cooper v. Travelers Indem. Co., No. C-01-2400, 2002 WL 32775680, at *5 (N.D. Cal. Nov. 4, 2002), the court found that the policyholder could make a claim for business income and extra expense loss due to a contamination of a well with E. coli bacteria.

Civil Authority Coverage

Civil Authority Coverage applies when there is an order or action issued or taken as a result of (1) physical loss or damage, or (2) perils insured against to adjacent property or within certain distance preventing, prohibiting, or impairing access to the insured premise. Claims could be made provided that the (1) access to the area surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property, and (2) the action of civil authority is taken in response to the dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property. Courts can interpret “stay at home,” “safer at home,” or curfew orders to trigger coverage. Such orders cause business interruption and result in financial loss. Coverage begins 72 hours after the time of the first action up to four consecutive weeks from the date of action or when coverage for business income ends.

Extended Business Income

Extended Business Income offers additional relief due to business income loss. Such coverage does not apply to loss of business as a result of unfavorable business conditions caused by the impact of the covered cause of loss in the area. Coverage could be denied if carriers argue that continued loss could be due to competition. Such interpretation defeats the purpose of coverage and will be contested in litigation. Coverage ends on the earlier of (1) the date you could restore your operations, with reasonable speed, to the level which would generate the business income amount that would have existed if no direct physical loss or damage had occurred, or (2) 60 consecutive days after the date determined above. Coverage may run consecutively with the civil authority coverage.

Extra Expenses Coverage

Extra Expenses Coverage allows for recovery of necessary expenses incurred during the “period of restoration” not recovered if there was no direct physical loss or damage resulting from Covered Cause of Loss. Carriers may pay this extra expense to avoid or minimize the “suspension” of business and to continue operations at the described premises or at replacement premises or temporary locations, including relocation expenses and costs to equip and operate the replacement location or temporary location, and to minimize the suspension of business if you cannot continue operations. Claims could be made for losses due to COVID-19 including, but not limited to, marketing and advertising costs to resume business, additional security, disinfectant efforts to ensure safety on premise, and relocation costs, potentially including costs associated with equipping employees to work from home.

Getting Legal Help

Brown & Charbonneau, LLP represents individuals as well as large and small companies in cases involving all forms of contractual disputes. If you are involved in a contract dispute, or would like to learn about your rights and how to protect your business, we can provide you with the information you need. Contact us or call today at 714-505-3000 to schedule a consultation and learn more about how we can help you.

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