Insurance agents across the country have been flooded with claims for business interruption damages related to the coronavirus. If you own a business and have been impacted by the virus, you should report your damages to your agent and review your business policies as those policies will govern your claim and your policies may contain language that is different than the provisions referenced below. 

Business interruption coverage is designed to reimburse the insured business for the income it would have produced, had the interruption in operations not occurred. In other words, it is designed to indemnify the business for losses arising from the businesses’ inability to continue its normal operations. Coverage is typically provided for “the period of restoration” which is the least amount of time necessary to reinstate, repair, or rebuild the business, following the event causing the business interruption.

Most policies require proof of three separate elements to trigger a business interruption claim: 

1. The covered loss must cause direct physical loss of or damage to the property at the insured premises.
2. The covered loss must cause a necessary suspension or interruption of operations, and
3. The business income loss must be caused by the suspension or interruption.

Whether your insured business property has sustained direct physical loss or damage is fact- sensitive and contingent upon the laws of your state. Businesses that have been shuttered because of a governor’s order, i.e., restaurants and bars, will have a difficult time establishing losses caused by a “direct physical loss.” Conversely, businesses that have been shuttered for deep cleaning because an infected worker transferred the virus to business property surfaces, may be successful in establishing a direct physical loss.

In Mellin v. Northern Security Ins. Co., 167 N.H. 544 (2015), the New Hampshire Supreme Court Found direct physical loss requires evidence of a “distinct and demonstrable alteration” to the property.  The Supreme Court reversed a trial court order that concluded property damage caused by cat urine was not a direct physical loss because the odor was not caused by a tangible physical alteration to the apartment.

In Rainforest Chocolate v. Sentinel Ins. Co., 2018 VT 140, the Vermont Supreme Court defined the phrase “physical loss“ in the context of lost business income transferred in response to a fraudulent email. Sentinel’s business policy contained an exclusion for damages caused by a voluntary parting even if induced to do so by a fraudulent scheme. The insured argued the voluntary parting exclusion did not apply because his revenue loss did not involve physical loss or damage. The Vermont Court concluded the requirement of “direct physical loss ‘in the context of an electronic transfer of money was ambiguous. The Court agreed with the insured that the electronic transfer of funds did not involve physical property, yet the business lost actual “physical control and possession of its money that it otherwise could not have withdrawn,” constituting a physical loss. 

We have no controlling case law interpreting the traditional “physical loss” requirement for business interruption claims in relation to the coronavirus from either the New Hampshire or Vermont Supreme Court.

Many business interruption policies will also contain an exclusion that is specific to viral and/or bacteria based disease.   This exclusion is likely to contain the following language:

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded, regardless of any other cause or event that contributes concurrently or in any sequence to loss.  These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

J. Virus or Bacteria. 

1.  Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease                             .

This exclusion is a bar to coverage even when other causes contribute to cause the damage for which coverage is sought.  For example if your business is shut down because of a government order related to the virus, even though the government order may be the predominant cause, the virus also contributed to the cause as it was the reasoning behind the government order and thus at a minimum it was an indirect cause. The viral, bacteria exclusion has been interpreted by courts in the context of Legionnaires disease and H1N1.

We will continue to monitor activity in the courts across the country as courts interpret these policy forms as they pertain to damages associated with the coronavirus. We are available to review the facts of your specific business loss as well as your individual insurance policies.