“Very often, businesses find lots of good things are said when they buy insurance for protection of their business or property, but at claim time there is a different dynamic that involves contracts with legal language that may not match the promises.” That’s what Amy Bach, executive director and one of the attorneys with United Policyholders, a San Francisco-based nonprofit, said in a speech at a recent wildfire recovery webinar. “We say they paid for protection, claim coverage and service. The devil and the dollars are in the details.”
The North Bay Business Journal reports that a connection between crop insurance claims for smoke damage and business interruption claims for not being able to operate because of government public health orders in the pandemic is the terms of the policies…and it looks as though the language for both types of coverage continue to evolve. As far as business interruption coverage for epidemics, since the SARS outbreak in 2003, business interruption policies have started to include standard language excluding contagions, or the communication of disease from one individual to another by close contact.
DOES YOUR BUSINESS INTERRUPTION POLICY CONTAIN A VIRUS EXCLUSION?
Most commercial policies have exclusions for business loss because of contamination by virus. Thus, California business owners should review their insurance policies for a specific exclusion for viral/bacterial contamination or an incident triggered by an epidemic/pandemic. If a policy contains this clause, your insurance policy wouldn’t cover losses connected to the COVID-19 pandemic.
On the other hand, California business owners should check to see if they have a special endorsement for virus and pandemic, but this is uncommon.
That said, the strength of a business owner’s lawsuit boils down to the following:
- Whether the policy contains an explicit virus exclusion;
- Whether that policy exception is reasonably clear and unambiguous; and
- Whether the loss is physical property damage or monetary.
In some cases, epidemiologists are called upon to assess routes of transmission of the virus, and some legal theories such as unseen transmission are being drawn from successful environmental contamination cases in the past.
BUSINESS OWNERS IN BUSINESS INTERRUPTION LITIGATION SEE SUCCESS IN OTHER STATES
Bach noted that there haven’t been any recent wins for coronavirus-related business interruption claims in California. However, there was a successful case in North Carolina in October where the judge found that government closure orders that restricted the use of a group of 16 restaurants in the Raleigh-Durham area was a “direct physical loss” that was covered by the policy.
“Cincinnati’s argument that the policies require physical alteration conflates ‘physical loss’ and ‘physical damage,’” Superior Court Judge Orlando F. Hudson Jr. in his order. “The use of the conjunction ‘or’ means — at the very least — that a reasonable insured could understand the terms ‘physical loss’ and ‘physical damage’ to have distinct and separate meanings.”
Also, last month, an Ohio federal district court ruled in favor of Henderson Road Restaurant Systems, a company with more than a dozen steak and seafood restaurants in five states. U.S. District Judge Dan Aaron Polster held that the Ohio governor’s order to close dining rooms was the cause of the business loss—not the virus.
“However, the judge noted, “given the “growing consensus of courts” that have rejected COVID-19 business interruption claims, it cannot be said that Zurich did not have a reasonable justification for denying coverage.”
A California Appeal is Ongoing
Finally, an appeal has been filed by The Inns by the Sea, the operator of five Central Coast boutique hotels. Due to the importance and broad impact of this issue, the hotels’ attorneys asked the California Supreme Court take up the case directly. However, in December, the California high court declined the hotels’ request to bypass an intermediate state appeals court and directly consider Inns’ appeal of a trial court decision rejecting its claim for pandemic-related coverage. Instead, the appeal of an August ruling dismissing the suit against California Mutual Insurance Company is currently pending before the Court of Appeals in San Jose.
“The meaning and scope of this phrase is a threshold legal question affecting tens of thousands of California small businesses seeking relief from their insurers during this pandemic,” the hotels’ attorneys wrote. “This case thus presents an opportunity to resolve a critical aspect of the COVID-19 litigation tsunami swelling the dockets of California’s trial courts.”
California’s Insurance Commissioner Requires Insurance Companies to Fairly Investigate COVID-19 Business Interruption Claims
Despite, the uncertainty with these types of claims in the courts, the California Department of Insurance has received numerous complaints from business owners concerning insurance carriers that are trying to convince them not to file a notice of claim under their business interruption insurance coverage for COVID-19-related losses—or refusing to open and investigate these claims upon receipt of a notice of claim for a business’ business interruption due to the coronavirus pandemic.
As a result, Insurance Commissioner Ricardo Lara and the Department of Insurance issued a Notice requiring insurance companies and other Department licensees to comply with their contractual, statutory, regulatory, and other legal obligations and fairly investigate all business interruption claims caused by COVID-19.
“I want to be absolutely clear that insurance companies need to fairly investigate all business interruption claims as they would during any disaster,” commented Insurance Commissioner Ricardo Lara. “Policyholders deserve all the services, coverage, and benefits they are due under their policy.”
WHAT ARE INSURANCE COMPANIES' OBLIGATIONS UNDER CALIFORNIA LAW?
This recently-issued notice and existing California regulations require insurance companies and other licensees to do the following:
- Comply with their contractual, statutory, regulatory, and other legal obligations with all California insurance claims including business interruption insurance claims, event cancellation claims, and other related claims filed by businesses in the state;
- Acknowledge the notice of claim immediately, but not more than 15 calendar days after receipt of the notice of claim;
- Provide the policyholder with the necessary forms, instructions, and reasonable assistance, such as specifying the information the policyholder must provide in connection with the proof of claim and begin any necessary investigation of the claim; and
- Immediately accept or deny the claim, in whole or in part—but not more than 40 days after receipt of the proof of claim.
The Department of Insurance website says that “strongly encourages businesses to review their policies, including policy exclusions, coverage limits, and applicable deductibles, and contact their insurance companies” to see what their policies cover.
If you’re a California business owner with questions about business interruption and insurance policy coverage, contact us.
Eanet, PC handles all types of business and complex commercial litigation in both state and federal court. We represent both plaintiffs and defendants, and our attorneys have experience at every stage of litigation.
Is California Seeing Court Victories for COVID Business Interruption Claims?
Many California businesses that are still dealing with insurance claims from the 2020 wildfires now are trying to decipher their coverage for business interruptions caused by the coronavirus lockdowns. Some are discovering these types of losses are distinct, but they’re alike in the types of representations received from insurance agents as to the coverage and what they paid for.
ABOUT THE AUTHOR: Matt Eanet, Esq.
Matt Eanet is the Managing Shareholder at Eanet, PC and manages a diverse caseload that includes complex commercial litigation matters involving real estate, employment, trade secret, trademark and trade dress, and general business disputes. Matt obtained his J.D. from the George Washington University School of Law, where he served as an editor on the George Washington Law Review and graduated with honors.
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Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws and.how they may affect a case. For specific technical or legal advice on the information provided and related topics, please contact the author.