Business interruption insurance is insurance to cover losses when businesses are unable to operate for reasons outside of their control. Typically, in the commercial real estate context, landlords obligate tenants to carry this insurance and landlords normally carry their own policies as well. The tenant’s policy would protect their business revenue and the landlord’s policy would protect their rent stream.
Will business interruption insurance policies protect landlords and tenants from losses incurred as the result of the current pandemic? Not surprisingly, the insurance industry has recently made clear their argument that business interruption insurance policies were not designed to provide coverage against these types of communicable diseases and that they intend to deny requests for coverage. But of course, plaintiff attorneys will also get their say, and it is premature now to guess whose argument will carry the day. It will likely depend on the particular facts of each case and the exact language of each policy.
As I discussed in my recent post, the language of the policies will need to be carefully reviewed. Equally important will be an analysis of the details in the government stimulus packages. These types of policies will generally require a physical loss, and whether the pandemic qualifies will be the subject of many negotiations. Further, many policies include a 2006 ISO endorsement form, which essentially excludes coverage for losses due to viruses, bacterium and other micro-organisms. However, at the same time, the policies may also include protection from civil authority shutdowns. Mandatory closures issued by governors and mayors would seem to apply. One important question to discuss with your attorney is whether it matters if the business closes before ordered to by the government. Whether or not a creative attorney, for either the insurance company or for the business, can craft a compelling argument in interpreting this competing language will likely be decided on a case-by-case basis.
A big factor will be how does the government get involved? As part of the stimulus packages under approval now in Washington, and perhaps the ones to come, will the government set up any fund or other type of relief to backstop the insurance companies? Will there be relief for landlords not collecting rent? Will the government issue guidance on how these clauses are interpreted?
Clearly the situation now is unsettled. Depending on the particular facts of each case, it might be prudent for businesses (both tenants and landlords) that have been affected by the pandemic to provide notice to their business interruption insurance carrier of a potential claim. The insurance company will likely protect their interests by denying the claim but starting the process may protect the business as this pandemic continues and the government inevitably gets more involved. In any event, it would be advisable for businesses to begin the process now of assembling the materials they will need for such a claim, including financial statements, tax returns, payroll information, sales reports and other documents evidencing the related losses.
Please contact me should you need to discuss.
This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors, and are not necessarily the views of any client.