By Steven R. Rowland and Kenneth L. Moskowitz
Most insurance policies, including business interruption policies, use standardized language drafted by an insurance industry trade group that define coverage through an initial grant of coverage and exclusions that narrow the initial grant of coverage by excluding certain kinds of risk that may otherwise be covered. As a result of COVID-19, many businesses have experienced shutdowns and/or limitations that have caused and will continue to cause significant loss of income. Unfortunately, many businesses that had the foresight to procure business interruption coverage are likely to find that business interruption policies will not provide coverage for the economic harms arising from the pandemic.
Most policies contain standardized language in their initial grant of coverage that will limit the scope of coverage to interruptions caused by “physical damage” to property such as, for example, damage caused by a fire. Since viruses harm people, the injury to business they cause is unlikely to be covered. To make matters worse for the policyholder, per the standardized language, most business interruption policies also contain express exclusions for business interruption caused by viruses. The form language was altered to specifically exclude coverage in about 2006 in response to the SARS virus.
Since not all policies are written identically and some do not use form language, if you have a business interruption policy, you should carefully review the policy with your insurance broker or counsel. There may be some business interruption policies that provide coverage because they do not use the standardized language, so don’t give up. Perhaps more importantly, even if the express language of the policy does not provide coverage, there are legislative efforts, both at the federal level and here in New Jersey, to require insurers to provide some coverage notwithstanding the actual policy language. Again, the lesson is don’t give up.
In fact, in the wake of Superstorm Sandy, there were politically-motivated compromises that resulted in property damage coverage even though careful examination of the policy language would suggest either that coverage was excluded or more limited. Presently, there is political pressure for coverage that effectively would “rewrite” business interruption policies in a manner to benefit policyholders.
The practical take-away is straight forward: have the policy examined carefully by a professional. The precise language matters and matters a lot. But even if the policy language incorporates form language that blocks coverage, our advice is to make a claim because it is uncertain whether or not the insurance industry will ultimately be able to enforce that form language. If you don’t make a claim timely and document your losses, you will forfeit coverage that ultimately may arise as a result of political pressure or legislation. Finally, if you do make a claim, be as precise as possible in documenting your losses.
If you would like more guidance, please contact Steven R. Rowland or Kenneth L. Moskowitz here at Brown Moskowitz & Kallen, P.C., (973) 376-0909. We will be glad to review your policy and discuss strategies that may be considered.
Steven R. Rowland, Office Extension 1124, mobile (973) 879-0544
Kenneth L. Moskowitz, Office Extension 1112, mobile (908) 770-0160