The Construction Advantage, Business Interruption Insurance and COVID-19
Few industries or aspects of business have been left untouched by COVID-19 and the resulting economic closures. Though construction was permitted to continue in most areas, the construction industry has and continues to experience substantial hurdles:
- Subcontractor defaults and cancellation of projects,
- Supply chain delays, or unavailability of materials,
- Temporary project shutdowns, and
- Slowed progress and increased costs resulting from the implementation of social distancing and other safety measures.
As economies are slowly beginning to open again, many are counting their losses and turning to business interruption insurance to help cover the gap.
Business interruption, or business loss insurance, is a type of insurance that covers the loss of income that a business suffers after a disaster. Typically, the loss must result from a physical disaster closing of the business facility or due to the rebuilding process in response to physical damage. Many businesses, the insurance industry, and the legal system are currently debating whether COVID-19 had sufficient physical impact to trigger business interruption coverage for insureds.
This debate is playing out in courtrooms across the country. In California, the French Laundry, a James Beard award winning restaurant, brought suit against Hartford Insurance requesting a declaration that business losses resulting from COVID-19 are covered by their policy. Similar suits are playing out in New Orleans and Boston, where Legal Seafoods and Oceana Grill are suing their insurers seeking coverage for their losses. While the actual claims and policies vary, the goals are the same.
The lawsuits largely argue that COVID-19 is physical in nature, which has led to the government mandated shutdown of business, and therefore coverage is triggered. In the alternative, some businesses have asserted claims that COVID-19 is a pollutant thereby triggering pollution coverage. In the months and year to come, this question will ultimately be determined by the courts, and will likely vary state-to-state and policy-to-policy. The devil is in the details.
What Should Business Owners Do?
If you have incurred a business interruption or a slow down of business as a result of COVID-19 and you have business interruption insurance of any kind, you should submit an insurance claim to your broker in writing, requesting that your broker submit the claim to all applicable policies. To the extent you have potential coverage, your insurer requires prompt notice of any claim and you should make every effort to meet policy requirements. If you are not sure if you have business interruption insurance, you should contact your broker to review your policies and provide you with information regarding your available coverage. All correspondence with your broker should be in writing so there is a clear record of the request and the broker’s response. During this time, you should start and continue to carefully track your losses and document your damages.
Some brokers having reviewed policies are recommending that insureds not make claims based on the physical damage requirement of the policy – we recommend you make the claim even if the business interruption claim will likely to be denied. We recommend that you should then provide the denial letter and a full copy of your policy, which your broker can provide, to your attorney for review. While many have initiated lawsuits in response to denials, the prudent action for most businesses may be to submit a claim, receive their denial, and then wait for others to litigate the issue of coverage. If courts decide that business interruption policies cover COVID-19 losses, you will have preserved your claim and can renew its pursuit later (you usually have one year from date of denial to bring a coverage action against your insurer) when issues regarding coverage have already been clarified by the courts. But, this is only possible if you submit a timely claim against your policy now, and are able to document your damages later. In this case, an ounce of prevention may be worth a pound of cure.