Authored by Jim Davis & Brad Dlatt

The coronavirus pandemic is causing unprecedented business closures and revenue losses with governments working hard to respond. As a result of the actual presence of coronavirus cases in all 50 states, civil authorities are prohibiting large gatherings, ordering restaurants and bars closed, requiring a reduction in business operations, or mandating complete area or state-wide lockdowns with residents sheltering in place. Businesses are struggling to understand the scope of available insurance coverage for these losses. Some policyholders are facing denials or disputes from insurers based on purported contamination or virus exclusions in their policies. Others are finding that their policies contain low sub-limits that are inadequate to meet their losses even though the full limits of their policies would provide substantial relief. Given this dire situation, legislative efforts are underway that might provide relief to policyholders.

Policyholders need to carefully review their insurance policies for coverage as policy provisions vary widely. Most companies impacted by this pandemic will look to property/business interruption policies for coverage. First party property insurance policies may provide coverage for property damage, including decontaminating property exposed to coronavirus, under all-risk policies or communicable disease endorsements. Companies should also look to their business interruption insurance with time element coverage that may reimburse them for lost profits and loss of use during a suspension of business operations caused by coronavirus. Coverage may be triggered by coronavirus at an insured location, at a dependent property, at a supplier’s property, or within a designated distance of an insured property, if subject to an order of a civil authority. However, companies are learning that insurers are invoking contamination or virus exclusions to deny coverage completely or are seeking to limit their exposure under low sub-limits.

Given the breadth and severity of the losses being incurred, a legislative effort is underway to force insurers to provide coverage for the full limits of these property/business interruption policies for coronavirus claims. A novel bill was introduced in New Jersey on March 16, 2020, and was pulled for amendments and expected to be reintroduced, in an effort to provide relief to businesses faced with coronavirus claims. As presented, the bill is meant to require property/business interruption insurers to pay coronavirus claims in New Jersey up to the full limits in their policies, despite any exclusions or sub-limits that might otherwise apply. The amended bill may allow insurers to be reimbursed (in part or in whole) for such expanded coverage from the State of New Jersey through future insurance taxes.

More recently, a bipartisan group of 18 members of Congress wrote a letter to the insurance industry requesting that they cover these claims despite policy provisions. Although the insurance industry has pushed back against these efforts, there are reports that discussions are underway to find a solution using insurance and possibly backed by federal reimbursement. Given these developments, it is important for Policyholders to promptly make claims for losses from this pandemic on their current property and business interruption policies in order to preserve their rights for coverage.