On May 15th we published an article about business interruption insurance in the age of COVID-19. What we didn't anticipate at the time was the civil unrest arising out of the killing of George Floyd, and the additional impact rioting and looting would have on small businesses. Fortunately, while it is still unclear whether business interruption insurance coverage will pay for virus-related claims, there is plenty of precedent for coverage to pay for direct physical damage to the insured's property. Furthermore, there may be coverage to pay for business interruption losses where businesses were forced to close or lost income due to rioting, curfews and other closures mandated by civil authority.
The different types of coverage
An insured's first party property policy, and potentially other entities' property policies (if the insured is named as an additional insured), cover the damage to the insured's property. Business interruption insurance policies apply to losses resulting from the cessation of operations, orders of civil authority and loss of business due to civil strife where there is property damage at or near the insured's property. Contingent business interruption coverage applies where the loss in business income results from property damage at a customer's or supplier's property. Likewise, civil authority coverage can apply even where there is no damage to the insured's premises, but there is physical loss or damage nearby. Finally, some policies allow the policyholder to elect to have the insurance company advance the actual cash value of the property in order to fund necessary repairs. Once the repairs are made, the insurer is required to pay the difference between the replacement cost and the actual cash value already advanced.
The arguments insurers will make
While insurers will likely argue that there is no business interruption coverage if the business was already subject to a mandatory COVID closure, the language in many of these policies does not support that argument. For example, business interruption coverage should still be available if your business was ready to re-open, wholly or in part, when the protest-related closure or slow down occurred.
While this is mostly good news, policyholders should be aware that the insurers are likely to assert limitations or exclusions that exclude or limit coverage for the first 72 hours of the closure (the “waiting period”), that apply to damaged buildings empty for more than a certain number of days (the “vacancy” or “vandalism” exclusion), or that limit coverage to only short periods, i.e., three consecutive weeks of loss. Policyholders should also be sure to continue paying their insurance premiums, despite the economic crisis brought about by the pandemic. If the policy is a claims made policy, the policy must be active when the claim is made.
How to increase your chance of recovery
In order to give your business the best chance at success on its insurance claims, be sure to take the following steps:
1. Read your policy and consult with an experienced insurance coverage lawyer who can interpret competing claims and exclusions. This is especially important now given the complexities of a pandemic combined with rioting and looting;
2. Give prompt notice of your claims under all potentially applicable policies, both at the primary and excess levels of coverage and even if your losses are not currently expected to reach the claim threshold that would trigger coverage;
3. Carefully document all damage, costs of repair, expenses and lost income to present to the insurer. Consider using a separate accounting code to help with documentation.
4. Mitigate your damages. Take reasonable measures to reduce damages, such as boarding up windows or installing new doors, so that the insurer cannot later claim that your inattention resulted in damages they don't need to pay.
If you need assistance with your insurance claim, please contact the team at Res Nova Law so we can get you headed in the right direction.