COVID-19 Brings to Life Coverage That Is Typically Straightforward

For two months the hottest topic in insurance claim circles is whether business loss interruption coverage applies to businesses closed due to COVID-19.  Most writers on the topic answer the question of whether there is coverage with:  it depends.  That answer is unsatisfying but true.  Coverage does depend on how the policy reads.

Throughout America insurance policies are thought of as contracts. Contract law applies to insurance policies. Most insurance law arises from old-fashioned contract law applied to insurance policies. In the three states where I am licensed the state government does regulate form policy language for some parts of property insurance policies such as the appraisal clause. However, I have seen very little law to regulate how business interruption insurance must be written.

The many insurance companies throughout the United States do not write their business interruption coverage in a standard way. There are variations between policies.  Those variations are critical and defeat any “bright-line rules” across all insurance policies issued by all insurance carriers. Property owners with business loss interruption claims need a thoroughly and thoughtfully review the exact policy language governing business loss coverage.

It is important to note that business loss interruption coverage is usually written separately from civil authority coverage. Both coverages are meant to provide financial payouts due to closure of business operations. They are not the same coverages. Business loss interruption coverage can arise from a multitude of scenarios whereas civil authority coverage must arise from an order of the government. My thoughts on civil authority coverage can be found here:

Many skeptics of business loss interruption coverage of claims arising from COVID-19 focus on the need for a direct physical damage to property. Often insurance policies require a triggering event such as fire, hail, or water, and then loss or damage to property. Before COVID-19 most business loss interruption coverage was triggered by such an event. Yet every professional engaged in reviewing insurance policies needs to review the policy language for a triggering event and not assume it requires an event like a first.

Here is a sample statement of coverage:

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

Courts have found that the operative word in this coverage is “of”.  In Gregory Packaging, Inc. v. Travelers Property Cas. Co of America, a court held that a facility no longer operational due to discharge of ammonia was a “direct physical loss of” that facility and therefore a covered event.  Whether ammonia physically damaged machines or structures at the property was not determinative.  The air was full of ammonia, uninhabitable, and thus an insured “loss of” that facility.

Imagine if the word “of” was not in a statement of coverage. I believe outcome of this case would have been different.  Without “of” the only conceivable event leading the coverage would be “damage to” machines in direct contact with ammonia.

While this case arises out of New Jersey and applies New Jersey law, the legal authority at issue is very similar throughout the United States and certainly the three states where I practice: Minnesota Wisconsin and Illinois. Insurance coverage of COVID-19 claims will be this detailed. It will require a thorough reading the policy and quite possibly an application of state law to it.

There will be other challenges for business loss interruption coverage. One of them is the existence of a virus exclusion. Yet the very fact a virus exclusion is in a policy is noteworthy: the virus exclusion acknowledges that a virus can cause property damage. That fact might be useful in a coverage argument

There are many websites that proclaim COVID-19 coverage is nearly impossible for any business loss interruption policy. I disagree.  Property owner advocates including the nonprofit United Policyholders Association agree that relying on verbal statements by agents or brokers of what is covered and excluded is unwise.  This Association has a nice library of resources for businesses looking for more thoughtful guidance which you can find here:

If you have any questions about business loss interruption coverage do not hesitate to contact me.



Ed Beckmann