Is there insurance coverage for coronavirus? What Minnesota businesses can do now.

Actions your company should take to determine coverage.  

The novel coronavirus pandemic (COVID-19) is having an unprecedented impact on the global economy.  In Minnesota, the virus has resulted in mandatory restaurant and public accommodation closures, event cancellations, drastic changes in consumer behavior, and supply chain disruptions.  The virus will impact the bottom line of practically every type and size of business.

A critical asset we see businesses sometimes overlook is their own insurance.   This article is to inform and help businesses who are suffering property damage or income loss because of the pandemic, and to provide steps they can take to minimize losses.

What Should Your Company Do

You must act quickly because policies often have short deadlines to submit claims.  We recommend you take the following steps.

Step 1:       Contact your insurance agent.  Ask for a copy of your policy if you don’t have one.  Explain in detail your business’s losses and ask whether your claim is covered.

While insurance agents are often very knowledgeable, they have never seen anything like this before.  Insurance agents are not attorneys.  Unlike a privately retained attorney, who will advocate on behalf of the client, insurance agents cannot take a specific coverage position against an insurance company they represent.

Step 2:       Document all the losses and keep paperwork.  You will need to prove the cause and scope of any loss to the insurer.  It is important you be able to determine the impact of COVID-19 on your business.

Step 3:       Contact an insurance coverage attorney before you submit a claim.  If you have some form of business interruption insurance, have an attorney conduct a policy review.  This is an inexpensive way to make sure you are getting all of the benefits under the policy that you paid for.  Having an attorney on board from the start can often avoid future litigation and improve the chances of winning.

Step 4:       Submit a claim.  Provide documentation supporting your losses.  State how the loss may be covered under the policy.  If the insurer agrees to investigate the claim, it is critical to have an attorney and independent adjuster on board to help with the claims process.

Step 5:       Talk to an attorney immediately if your claim is denied or disputed.  Insurance policies are complicated even for courts.  It is no wonder insurers often make mistakes interpreting their own policies.  If your company’s claim is denied and you haven’t retained an attorney, have an insurance coverage attorney review the denial and the policy.  This is usually quick and inexpensive.  Moreover, policies often contain very short periods in which you can dispute a claim, either by amending the claim or starting a lawsuit.  Contact us.

What is Business Interruption Coverage?

Business interruption coverage is a type of insurance purchased to protect businesses from certain specific causes of income loss.  Most often this coverage is limited to a business’s income loss due to “physical damage” or “direct physical loss” of tangible property.  Very often, however, there are additional provisions that expand this basic coverage.  This depends on the language of the policy and the cause and type of loss the business is experiencing.

Types of Business Interruption Coverage

There are three main types of business interruption coverage:

1. Property Damage and Income Loss

Most often property damage coverage is associated with fires, floods, and the like.  However, often policies define “property damage” to include both physical injury to property, including loss of use of that property, and loss of use of tangible property that is not physically damaged.  Many policies cover income loss due to damage to property.

There is precedent to support a claim that government actions will in some circumstances constitute “physical damage”.  For example, in one case a Minnesota appellate court interpreting an “all risks” police held that where the function of insured property is impaired, “direct physical loss” may exist “without actual destruction of or structural damage to the property.”  General Mills, Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147 (Minn. App. 2001).    The court explained the inability “to lawfully distribute … products because of FDA regulations” prohibiting the presence of a non-toxic pesticide is “an impairment of function and value sufficient to support a finding of physical damage.”  Id.   As a result, the business was entitled to coverage for the recalled property and lost income payments from the insurer.  In other cases, courts applying Minnesota law have held that contaminated products or government-ordered recalls trigger property damage and resulting income loss coverage.  That being so, there is a reason to be hopeful there is coverage for government-ordered shutdowns that result in intangible damage to property.

2. Losses Due To Government Action

Some commercial policies will pay for certain losses due to restrictions by a “civil authority,” which means action by any local, state or federal government entity.  This type of coverage provides income replacement when a government entity prevents or impairs access to an insured business.  Some policies require a “physical loss” of property, but others do not.  As mentioned, Minnesota courts may find that a government-forced closure is a sufficient impairment to be considered a finding of physical damage.  The good news is there is coverage does not require physical damage to property, but instead usually requires some event to trigger coverage. changes in consumer behavior and due to government action.

3. Industry-specific Coverage

The good news is there are industry-specific coverage extensions for certain forms losses not necessarily associated with any physical damage or impairment of property.  There are thousands of types of policies and endorsement combinations.  While brief, the following should give you a rough idea of the types of coverage extensions that may provide vital coverage for virus-related income loss:

• Supply chain disruption. Many manufacturing policies provide coverage for income loss due to disruptions to upstream and downstream suppliers.  The cause of the disruption vary by policy, and may be contingent losses by a “key” supplier or customer, or provide blanket coverage for all customers and suppliers.  Some courts have held that increased costs due to government-ordered shutdowns
• Communicable disease and food contamination extension. Some policies provide coverage for losses associated with a communicable disease.  This coverage is often provided in connection with food producers, event planning, and similar industries.  The coverage extension typically provides for reimbursement of lost business income as a result of a shutdown or suspension by order of a governmental agency due to the outbreak of a communicable disease.  Unfortunately, often this coverage requires such an outbreak at the insured premises.
• Non-Physical Business Interruption. This coverage specifically contemplates harm to a business despite no physical damage.  These are often industry-specific.  For example, there is specific coverage for airline companies that sustain losses as a result of a government-ordered shutdown or airspace closure.  These extensions may also provide coverage for regulatory closures, such forced closures by the government that result in income loss.
• Reservation and Event Cancellation Insurance. The hospitality and event planning industry often purchases specific insurance for mass cancellations or event-specific cancellations.  This coverage can either be over an extended policy period, or limited to a one-time event.  Some policies provide coverage for cancellations due to the COVID-19 pandemic.  These are typically worded as “all risk” coverage, or specifically name “epidemic coverage” in the policy.

Conclusion

Whether coverage is available for COVID-19 depends on the language in the policy and state law.  For this reason, this article is not legal advice, but instead should serve as a resource and starting point for anyone trying to determine whether they have coverage for the pandemic.   Let us help.  Contact coverage attorneys Bob Kuderer or Tom Brock with questions.