Do Commercial Policies Cover COVID-19 Losses?

March 2020 - the world was shaken by what would be the most significant pandemic of the 21st century. Business shut down, minimized operations, shed employees, and suffered many financial losses.

As COVID-19 continues to disrupt the international supply chains and revenues, companies are losing revenue and incur extra costs. Many businesses will have to turn to their commercial policies and insurance carrier in hopes to claim alleviation.

The most plausible provisions come from business interruption insurance, as technically, a pandemic like COVID is like an unexpected natural calamity. Whether a business is entitled to claims, however, highly depends on the terms and conditions of the policy. Claims are also highly dependent on the situation and the circumstance of the loss.

The technical issue with business coverages is that they usually require physical damage for claims to succeed. When infections happen, health coverages for employees and individuals are common, but they might not cover for business loss.

If you own a poultry business and the chickens die of disease, you may claim loss of profit that amounts to how many potential returns you would’ve had from the number of chickens. If your employees get sick, they might earn money from your health coverage, but your profit loss from workforce absences are a different story.

There is also a thin but present line between damage and contamination. Whether COVID will be considered any of such during a claim case highly depends on the policy and circumstance.

What Is Business Interruption Insurance?

It is a policy that aims to protect a business owner against economic losses that result from a business’s incapability to put an insured property that has been damaged by a covered peril to its regular use.

A business interruption insurance typically claims for loss of profit that an owner could have earned if a business interruption hadn’t occurred. It also includes coverage for the continuing operational costs incurred in the duration required to restore the property from damage.

Physical Property Damage Commonly Triggers Coverage

Typically, you can regain lost profit from business insurance when damage to property occurs in your business. If your products, infrastructure, human resource, and others suffer damage, you can claim insurance from your carrier.

Property damage insurance is a minimum requirement and is often part of commercial property policy. Physical damage is typically required to trigger coverage, and business interruption by itself is not enough for a claim.

One example comes with a company selling cooking oil and shortening made from beef material.

The company claimed for business interruption coverage when the USDA prohibited the import of beef products from Canada when the cows in the location were proven positive for mad cow disease. Because the embargoed product was uncontaminated and not damaged, the court justified that the policy cannot cover for any loss.

The company would have succeeded the claim only with sufficient evidence that the property in the argument had contamination, i.e., damage.

Commercial property insurance may cover losses incurred by a forced closure of property by the civil authority.

Coverage is typically applied when the insured is unable to use its property because of a government order resulting from physical damage to an adjacent property. This means that a civil authority claim usually requires physical damage to trigger the coverage.

If the closure is not backed by evidence of physical damage, coverage will not occur.

Business interruption contingency policies protect an insured against economic loss resulting from damage to the property of a supplier or a customer. The coverage provisions will differ from policy to policy and might be restricted to damage to a direct supplier's property or extend to indirect suppliers.

Damage and Contamination - Cases

Deciding whether business insurance must cover any financial loss incurred by the pandemic can be technically complex. You would have to prove the ‘damages’ for you to claim successfully.

The following are some examples of claimants trying to recover losses and how the courts ruled out their decisions.

Merlin v. British Nuclear Fuels Plc [1990]

The case argued whether the aerial contamination of land situated close to a nuclear fuel plant could be considered as damage. The court decided that it was not ‘damage’ based on the fact that the dose of radionuclides needed to do any detectable damage was significantly greater than what was present in the claimant’s property.

Losinjska Plovidba v Transco Overseas Ltd (The Orjula) [1995]

This case was about a vessel found to be damaged following a spillage of hydrochloric acid. While the chemical is corrosive in nature, there was no argument put forward that the acid physically altered the vessel’s parts.

However, specialist contractors were employed to undertake decontamination work, and the need for decontamination was enough for the court to support a declaration of damage.

Blue Circle Industries Plc v. Ministry of Defence [1999)

The case argued on the contamination of land by radioactive waste that overflowed from a pond to property. The court decided that there was property damage on the basis that plutonium had been intermingled or mixed with the soil to the extent that it has been contaminated.

New Court Decisions - How COVID Triggers Coverage

Because of the pandemic's novelty and severity, court decisions now support the conclusion that when there is actual or threatened coronavirus contamination in or adjacent an insured property, that can constitute as physical loss or damage that can trigger business interruption coverage or commercial property insurance.

Government orders impairing access to an insured property on account of COVID threats or contamination can also trigger civil authority coverage.

Any threat of COVID nearby a property or actual spread in the property is now considered equal to physical damage.

Suppose you are a business or company owner and are looking to regain money for your loss of profit, your employees’ loss of salary, losses incurred by a complete shutdown of operations, and other adversities given by the pandemic. In that case, you can hold your insurer accountable, given you have a strong claim and that the provisions about ‘property damage’ are sound and in place.

You need the help of an insurance litigation lawyer to sort these things out because your insurer will always try not to pay you. The nature and business model of an insurance company count your claim as a loss to them - they profit by collecting and lose by giving.

If you own an insured business that is covered for physical damage and is significantly affected by COVID-19, you must act now and call a lawyer. You can regain your losses.