The past few months have been a whirlwind of uncertainty. Between managing shuttered workplaces and remote workforces, understanding constantly evolving legislation covering everything from required paid leave to requirements for government loans, and trying to plan for an uncertain economic future, anything that did not demand immediate attention likely got moved to the back burner. Among those back-burner issues may have been assessing potential insurance coverage for business loss and extra expense from the pandemic. But it is important to review available coverage and submit a claim to an insurance provider soon to preserve the chance of recovery.
The Likelihood of Coverage
We previously explored what coverage options are likely available and the primary arguments for whether each coverage applies. Since then, the landscape has evolved to provide additional clarity as to the arguments each side will likely advocate in litigation. As always, the success of those arguments will depend on the specific policy language and applicable state law.
Although the insurance industry has made an impressive effort to message to policyholders that there is no coverage for any business loss from COVID-19, the accuracy of that message is open to debate. In most cases, the question of coverage will turn on whether the presence of the virus that causes COVID-19 is deemed “physical loss or damage.” That question has resulted in over 600 lawsuits around the United States already. If the picture were as clear as the insurance industry would like to paint it, it is unlikely that policyholders and insurance carriers would be filing lawsuits in mass to resolve it. But that is what is happening.
The most discussed argument for contending that COVID-19 resulted in physical loss or damage comes from prior case law holding that the presence of contaminants, such as asbestos, qualifies as physical loss or damage. Insurance companies have pushed back, claiming that there should be physical damage to the structure of a covered property to meet the definition of physical loss or damage. But policyholders have countered that the requirement is that there be physical loss or damage. If the requirement can only be met when there is physical damage to the structure of a building, then the inclusion of physical loss is rendered meaningless. And courts will not interpret policy language such that terms are rendered superfluous.
Another argument advanced by policyholders is that the insurance industry has implicitly conceded that there could be coverage for business loss from a pandemic if a policy does not contain a “virus exclusion.” Specifically, in 2006, the insurance industry’s drafting arm, the Insurance Services Office or ISO, created the virus exclusion in response to the first SARS outbreak and circulated a statement to state insurance regulators about the exclusion. In that circular, the ISO appeared to recognize that policies could be read to cover losses from viruses if the industry did not add the exclusion, explaining, “When disease-causing viral or bacterial contamination occurs, potential claims involve … business interruption . . . losses.” Lawsuits filed by policyholders have quoted this language as support for the notion that policies without the virus exclusion should provide COVID-19 coverage, including at least one potential class-action lawsuit filed in the Northern District of Georgia. See, e.g., The K’s Inc., v. Westchester Surplus Lines Ins. Comp., No. 1:20-CV-01724-WMR, (N.D.Ga., filed Apr. 23, 2020).
That is not to write off the possibility of coverage if a policy has the virus exclusion. Indeed, many pending lawsuits, including proposed class actions, are based on policies that contain the exclusion language. See, e.g., Truhaven Enterprises, Inc. v. Chubb Ltd., No. 2:20-CV-04586-DRC-CLW (D.N.J., filed Apr. 20, 2020) (putative class action); Mudpie, Inc. v. Travelers Casualty Ins. Comp. of Am., No. 3:203213-JSC (N.D. Cal., filed May 11, 2020) (putative class action). Some of these plaintiffs have posited that the virus exclusion is ambiguous and invoked the well-settled principle that any ambiguity in a policy must be resolved in favor of the policyholder. Others have argued the proper notice was not provided in adding the exclusion during an annual renewal. Also, state legislatures have proposed more than a dozen bills to require coverage for claims from COVID-19, sometimes even if there is a virus exclusion, including in Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and South Carolina. Thus, while the virus exclusion may pose a formidable obstacle to coverage, it is still worth reviewing the precise language and circumstances of the exclusion to determine whether to submit a claim.
Notably, there is a push to resolve these lawsuits though centralized litigation with the Judicial Panel on Multidistrict Litigation (“JPML”). See IN RE: COVID-19 Business Interruption Protection Insurance Litigation, MDL No. 2942 (J.P.M.L., filed Apr, 20, 2020). If cases are consolidated, this could streamline resolution of many of the outstanding arguments, but the JPML has not yet set a hearing date for argument in the matter.
The Need to Submit a Claim
At this point, there is still substantial uncertainty surrounding available coverage. If policyholders fail to submit a claim, though, they will lose the potential for recovery if courts come down in favor of coverage. Further, if policyholders do not submit a claim soon, they may also risk losing coverage based on untimely notice, as almost all policies require policyholders to submit notice of a claim as soon as possible. There is also the risk of failing to submit a claim in the correct policy period if, for example, a policy is up for renewal in the near future. This back-burner issue is quickly becoming one that needs attention now.
Of course, merely submitting a claim does not require a policyholder to be at the forefront of fighting what promises to be a complex legal issue. It can simply preserve a business’s rights should pending lawsuits interpret policies in favor of coverage. But businesses must be mindful during that time of other requirements under applicable policies, including obligations to cooperate in any investigation of a claim. This can include providing documentation showing the financial loss or extra expense incurred in responding to the pandemic, whether that is lost revenue from business closures or additional expense from cleanings or supporting a remote workforce. Businesses will also need to take any action necessary to preserve their rights while awaiting additional guidance from the courts, including objecting to an insurer’s denial of coverage and calendaring any deadlines for bringing a lawsuit (which can be set by a statute of limitations or within the policy itself).