The Missouri Department of Commerce and Insurance issued Insurance Bulletin 20-05 in response to the COVID-19 (commonly referred to as the coronavirus) emergency. This bulletin strongly encourages that “coverage for residents of the State of Missouri should continue under all insurance policies in effect as of March 13, 2020, and shall remain in effect until such time as Executive Order 20-04 is terminated or this bulletin is rescinded, whichever is later.” Further, insurers “are strongly encouraged not to cancel, non-renew, or terminate coverage while [the] Bulletin remains in effect.” While that is great, many businesses are wondering if they have coverage that could pay for damages done by COVID-19 and the forced closure of their business.
The most likely source of insurance coverage available to businesses arising out of the COVID-19 pandemic is a business interruption insurance policy purchased by the business. Some insurers do offer policy coverage for damages arising out of a pandemic, but until the world felt the collective sting of the COVID-19 pandemic, many businesses likely felt those unnecessary to incur the premium expense.
Business Interruption Insurance
To determine whether a business has business interruption or some other insurance coverage, the business should review its policies or ask its broker. Potentially meaningful language variations exist among various insurers with respect to business interruption, so a close analysis of the policy’s language is critical. Some less sophisticated insurers may be more likely to have failed to expressly exclude the impact of a pandemic from insurance coverage, and therefore may be more vulnerable to claims. But even the largest, most sophisticated insurers may have left open for interpretation whether its business interruption policies provide coverage for a pandemic like COVID-19. Of course, if insurers are forced to provide coverage under these policies and did not adequately set reserves, it seems likely that many of these insurers could face insolvency, in which event their insured may never receive any benefit. As a result, it is possible that, similar to what happened after 9/11, the Federal government creates a common fund to support payment for coverage under these types of claims. But until that happens, these are basic contract coverage issues that a business needs to look at to determine whether it should attempt to make a claim against its insurer for coverage.
Absent express exclusions for pandemics, the “common” issue will likely be whether these business interruptions (whether mandated by government shutdowns or not) are the result of “direct physical loss.” The burden of proof on this issue could prove to be important. Generally, the burden is on the insured to come within the scope of a “grant” of coverage under a policy. The “direct physical loss” requirement is part of the “grant” of coverage. So it seems likely that the insured's will have the burden of proving that they sustained a “direct physical loss.” In that case, insureds who can allege that, prior to the government shutdown, they had an employee, owner, customer, or other visitor test positive or be directly exposed to someone who tested positive, will give them a stronger factual case. However, many businesses will not fall into this category.
Otherwise, the “direct physical loss” issue may need to be something that an insured can prevail on based on the “threat” of a “direct physical loss,” or, it would need to be found that in the pandemic situation, all physical surfaces or spaces would need to be deemed contaminated or sufficiently likely contaminated that they have to be considered “damaged,” physically, not just as a matter of perception. Conversely, the burden of proof is on the insurer to prove that an exception applies.
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