Business Interruption Losses in the Age of COVID-19 Business...Alan H. Packer Jeffrey M. Dennis...

Alan H. PackerJeffrey M. Dennis

Business Interruption Losses in the Age of COVID-19

© 2020 Newmeyer & Dillion LLP. All Rights Reserved | newmeyerdillion.com

Today’s Agenda

• Understanding Business Interruption coverage• What is “Direct Physical Loss or Damage”• The Tsunami of Pending Litigation• What are the Legislatures Doing?• Top 5 Tips for Handling Your Company’s Potential

Insurance Claim


Business Interruption Coverage

Types of policies to examine for business interruption coverage

Property insurance

Builder’s Risk insurance

Occasional free-standing business income/interruption coverage

Event coverage

For liability purposes, check your other policies as well:

CGL

E&O

D&O

Workers comp

Etc.


Simple enough in concept here:

• We have a business

• We have insurance

• Our business has been interrupted by COVID-19

• We have losses due to that interruption

• We have insurance for business interruption losses

And if you’re one of the few who has a coverage form providing coverage for “INTERRUPTION FROM COMMUNICABLE DISEASE,” it may be simple for you.

Business Interruption CoverageA simple concept?


1. Business income loss - your property

2. Extra expense incurred - your property

3. Ingress/egress coverage - Loss or expense due to damage to adjoining or nearby property that blocks your access. Usually with a geographical limitation and often a sublimit.

4. Civil authority coverage – Where civil authority prohibits use of your premises due to damage to another property, usually with a geographical limitation and often a sublimit.

5. Dependent property

5 ROUTES TO COVERAGE 2 LIMITATIONS/COMPLICATIONS

1. Direct physical loss or damage to property”

2. “Virus or bacteria exclusion” (or “pandemic,” or “communicable disease”)

Be sure to check the pollution exclusion definition

Business Interruption CoverageStyles of coverage and limitations


6. Event coverage

7. Sublimits for communicable disease

7

Business Interruption CoverageDirect physical loss or damage

Business Interruption CoverageLoss of business income (insured property)

© 2020 Newmeyer & Dillion LLP. All Rights Reserved. | newmeyerdillion.com

Business Interruption CoverageExtra Expense


Business Interruption CoverageExtra Expense, cont’d


Business Interruption CoverageCivil Authority


Business Interruption CoverageIngress / Egress


Business Interruption CoverageDependent property (aka “contingent property”)


Business Interruption CoverageDependent property, cont’d


• 5 different routes to coverage (7 if you include sublimits and event coverage)

• And clearly, we will have to address the complication of the “physical loss or damage” language

• But first…. A present (not for you) from the Insurance Services Office

Business Interruption CoverageQUICK SUMMARY


Business Interruption CoverageISO BACTERIA EXCLUSION


Business Interruption CoverageISO BACTERIA EXCLUSION, contd


Business Interruption CoverageAnother form of BACTERIA EXCLUSION

INSURER:

• You need to show “damage” to property.

• The coronavirus does not cause “damage.” You can wipe it off.

• Your income loss is due to government medical policy, not damage to your property.

• The burden will be on you to demonstrate actual physical damage from the virus at your location.

POLICYHOLDER:

• “loss or damage” cannot mean just “damage.”

• “property damage” is often defined in the same policies to include “loss of use of property that is not physically injured.”

• The inability to use my business premises is a loss – I have suffered a direct physical loss.

• My loss arises from dangerous conditions of property, either my own or in the immediate vicinity.

So, Then… What Is “Direct Physical Loss or Damage” ?


Gregory Packaging, Inc. v. Travelers Property and Casualty Company of America, No. 12-cv-04418, 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 25, 2014).

• CLAIM: Business interruption losses after a refrigeration system inside Gregory’s property released an unsafe amount of ammonia.

• HELD: Adverse structural alteration (“damage”) not required to satisfy “direct physical loss or damage” requirement

So, Then… What Is “Direct Physical Loss or Damage” ? cont’d

Cases Cited By POLICYHOLDERS:• smoke from wildfires affecting

theaters

• release of ammonia into a packing facility (Gregory Packing)

• e-coli in well making the insureds ill

• gasoline infiltrated soil surrounding basement, contaminating foundation and rooms and rendering use of building dangerous)

• mere presence of asbestos in building made use of the building dangerous

• carbon monoxide levels in apartment building

• smell of cat urine

• government’s closure of National Airport during the 9/11 attacks

• mildew - adherence of molecules to porous surfaces

• home rendered uninhabitable by toxic gasses released by drywall)


• Dust & debris from nearby roadwork (restaurant)

• Mold that could be removed simply by cleaning affected surfaces

• Odors, mold, bacteria in HVAC system

• “mere adherence of molecules to porous surfaces”

CASES CITED BY INSURERS:

• Presence of asbestos in a building

• Situation where no distinct and demonstrable physical damage, even molecular, was shown

• Mad cow disease contaminated beef

• Mold staining on the exterior


How are Business Income Losses Calculated?


The Tsunami of Pending Litigation

Note: This used to be a simpler series of slides

We are currently tracking over 130 cases

Various state and federal

courts

Numerous purported

class actions

Several requests for

MDL treatment


Two months in, and here’s where we are.

Status of limitations: Typically 4 years for breach

What are the Legislatures Doing?

California: Insurance Commissioner order


What are the Legislatures Doing?

• State bills typically require payment of business interruption losses per policy terms, regardless of whether COVID-19 related.

Eliminates virus exclusion

Eliminates fight over “physical loss or damage”

Same limits, deductibles, waiting days, days of coverage as in policy

Typically funded through program where policyholder payments on future policies create a fund after the fact (similar in some ways to terrorism coverage)

• Insurance industry response: Who wants to guess?


Requires payment of business interruption losses on the same basis as other interruptions covered by the policy

No funding mechanism other than to suggest vaguely that the insurers may reinstate exclusions if insureds do not make payment of premium.

What Are the Legislatures Doing?HR 6494: Business Interruption Insurance

Coverage Act of 2020


Top 5 Tips

• Tip #1: Put your insurer on notice

• Tip #2: Put your insurer on notice even if you have a bad policy

• Tip #3: Put your insurer on notice even if you have a bad policy because how will you feel if any of that legislation passes?

• Tip #4: Put your insurer on notice even if you have a bad policy because what if some other business cracks through the barrier in court?

• Tip #5: See Tip #1


Top 5 Tips

• Tip #1: Review your policies and know what you’ve got

• Tip #2: Even if it looks bad, put your insurer on notice

• Tip #3: Track your losses – you’ll want it for tax purposes anyway

• Tip #4: Track your additional expenses – you’ll want that for tax purposes as well

• Tip #5: Make sure you comply with the “proof of loss” requirements in your policy


Questions


Contact Us

Jeff [email protected]

949.271.7316

Alan [email protected]

925.988.3221

Business Interruption Losses in the Age of COVID-19 Business...Alan H. Packer Jeffrey M. Dennis...

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