COVID-19 Commercial Property Insurance Coverage Issues: The Sequel

In a prior post, we covered the issue of the COVID-19 pandemic and commercial property insurance coverage. We advised that all businesses review their commercial property insurance policies to determine if they potentially have coverage for any of the actual, or anticipated, losses.  In that prior post, we examined, among other areas of coverage, Business Interruption Insurance.

Business interruption insurance protects against economic losses resulting from a business’s inability to use the insured property. Business interruption insurance generally pays for (i) loss of revenue that would have been earned had there been no business interruption, and (ii) the continuing normal operating expenses incurred the damaged property is restored.

Typical business interruption policies  generally require the following in order for a business interruption to be a recoverable loss: (1) physical damage to insured property, (2) which damage is caused by a covered peril,  (3) which results in quantifiable business interruption loss until the time  the damaged property is restored.

We noted that because business interruption coverage is part of a commercial property policy, property damage and loss is generally required to trigger coverage. Thus, business interruption by itself, without property damage, is typically not enough to trigger coverage.

Thus, the critical issue in determining whether there is business interruption coverage is, whether Covid-19 caused “property loss and damage” resulting in the loss of income.  While the virus does not cause obvious visual physical damage to property in the same way a hurricane, for example, does, it nevertheless is, presumably, present in the covered property. In similar circumstances, some courts have found that the actual presence of harmful substances at or on a property can constitute “property damage” that triggers first party property coverage, even though those substances do not result in obvious visual physical harm to the property.

Since posting our last blog on this topic, we have learned that insurers have, not surprisingly, been abruptly denying claims for business income losses based upon the insurers’ conclusion that the subject premises has not sustained property damage or loss.

However, significantly, on March 16, 2020, Mayor DeBlasio issued Emergency Executive Order No. 100 wherein it was notably proclaimed that “the virus physically is causing property loss and damage.”

The Mayor’s emergency proclamation that “the virus physically is causing property loss and damage” raises a unique issue as to whether insurers can properly, and in good faith, deny business interruption coverage based upon a blanket conclusory denial that the property has not sustained any damage or loss. We have heard that some insurers have actually submitted unsolicited letters to their insureds, even before any claim was submitted, advising that coverage was not available because the virus does not result in any property damage and loss which is required to trigger coverage.

We believe that a denial of coverage based upon a finding that there has been no property damage and loss in light of Mayor DeBlasio’s Emergency Executive Order made on March 16, 2020 may be such to challenge. Furthermore, these unique facts raise a serious issue of whether insurers’ blanket denials made in a templated denial letter, constitute an actionable breach of the insurers’ duty of good faith and fair dealing.

If you have submitted a claim for coverage under a business interruption policy and have been denied coverage, give us a call and let us examine your policy and your insurer’s letter denying coverage, you may have a viable challenge to that denial and a bad faith claim against the carrier.

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