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Business Interruption Coverage in the Age of COVID-19

By Douglas Alexander, Attorney in the Business & Taxation Law Practice Group, and David Briggs, Attorney in the Employment Law and Litigation Practice Groups

It seems like each day there is a new twist is issues related to damages being suffered by service providers who have been shut down as a result of the public response to COVID-19. The one currently getting traction is what is happening with offices that submit claims under their business interruption policies.

Under business interruption insurance, the carrier covers the business’ loss of income after a disaster. It is typically thought of if a business has a fire, flood, or other act of God. Businesses now question whether this insurance may help in light of the coronavirus pandemic.

Of course, some businesses are affected more than others. Amazon, Clorox, and UPS would presumably be doing well. However, most other businesses have not fared as well. For example, medical and dental practices have suffered in Oregon – and many other states – in light of the Governor’s order to treat only urgent and emergency cases. Restaurants, bars, and other personal service professionals have seen revenue slowed to a trickle or ceased altogether. Businesses are turning to other sources to help survive, leading to a number of questions about insurance.

If businesses did have coverage for this pandemic, that coverage would pose a serious risk to the insurance industry in light of the vast number of likely claims. Anecdotally, we have heard from clients and others who have filed claims, that the claim denials are coming back quickly. The typical rationale for denial is the “virus” exclusion that most policies contain. That exclusion was an outgrowth of the SARS epidemic years ago and most policies will contain that exclusion.

The result of these denials has been that lawyers who specialize in insurance coverage claims are closely examining the policies involved, the basis for denial, and other legal theories for coverage. State law will impact the outcome of decisions in this area, and there some court precedent that supports the idea that the losses suffered are not only because of the virus but are because of the public health response to the virus, i.e., the orders of Governors for various business to close their doors and cease doing or vastly restrict business, to try to limit the spread of disease. Based on that argument, the claimant has a loss which may be caused by (a) the virus, and (b) public policies.

The tricky question of business owners is how to proceed. To be clear, each claim will depend on policy language and the circumstances for the business. Spending time and resources, which are currently scarce, chasing a speculative claim under a business interruption policy may be hard for many to justify. The cost could be high, the time it will take to get to a potential recovery could be long, and the outcome is uncertain. Another consideration is the impact the claim may have on your relationship with your insurance company, which can be particularly important and valuable for certain industries, such as those in healthcare or other professional practices.

There are groups of insurance coverage specialists who have chosen to take these cases on utilizing a contingent fee model. This will enable claimants to sign on to have their case handled at no cost unless and until there is a recovery. It is possible that these cases may be joined and become class action. It is also possible that they may be handled individually. Regardless, it is safe to assume that if you choose to sign on, you will not see any results for a very long time to come. The insurance industry will certainly fight these claims based on its policy language. Be aware that if this kind of litigation gains any traction, and particularly if there is an award or settlement, the odds are that premiums will rise across the board.

Another consideration is whether your policy includes time limits for when you must bring your claim. Without looking at your policy, we cannot provide guidance, but beware that the policy may shorten the period of time during which your claim must be brought once you begin to suffer the damage. Our recommendation is to file your claim, even if your carrier has told you in advance that it will be denied. That way, you have attempted to recover and received a formal denial from your carrier to preserve any rights that you may have.

If you want to be directed to a firm that will consider your case as part of a larger group of contingent fee claimants, feel free to give us a call. We are not handling the cases, but we can make a referral to provide some help.

 

Douglas Alexander is a partner in the Business & Taxation Law practice group, and a member of the Dental and Health Law industry teams. David Briggs is a partner in the Employment Law and Litigation practice groups, and a member of the Agri-Business, Dental and Health Law industry teams. The information in this article is not intended to provide legal advice. For professional consultation, please contact Doug at dalexander@sglaw.com or David at dbriggs@sglaw.com, at Saalfeld Griggs PC.  503.399.1070. © 2020 Saalfeld Griggs PC