Insurance Relief May Not Be Available For COVID-19 Losses
In a decision issued last week, the California Court of Appeals addressed the novel question of whether a commercial property insurance policy provides coverage for lost business income due to the COVID-19 pandemic. In bad news for business owners, the Court declined to find coverage for lost business income. However, the good news for business owners is that the Court only found that there was only no coverage under the particular policy at issue in the appeal. That is, the Court did not rule that all claims for COVID-19 losses were barred; rather, it simply interpreted the insurance contract, in the same manner as insurance contracts are usually interpreted (i.e., by plain language and analogy to prior case law), and found that the claimed losses under COVID-19 did not fit under any of the clauses of the insurance policy.
In particular, the Court focused on two sections of the insurance policy, one dealing with “Business Income” and the other addressing “Civil Authority.” The plaintiff, an inn operating four lodging facilities in Carmel-by-the-Sea and one lodging facility in Half Moon Bay, sought coverage for its lost business income under these two clauses on the claim that COVID-19 caused physical damage and that civil authorities issued orders that interfered with its business and also caused lost business income.
In rejecting these claims, it is again important to note that the Court did not conclude that these were unreasonable claims or that somehow such claims are barred in all instances; rather, the Court simply concluded that these particular claims were not encompassed by the insurance policy and so no insurance coverage was available.
What is the take away for companies in a similar situation as the plaintiff in this case who are interested in exploring whether insurance coverage is available for their COVID-19 losses? Two issues come to mind. First, at the end of the day whether or not you have insurance coverage for anything – whether related to COVID-19 or not – will depend on the exact language of your insurance policy and the exact nature of your claim. This is something that usually requires assistance from an experienced lawyer in the event your insurer declines to pay your claim.
The second is that, going forward, businesses should consider giving more careful thought and analysis to the scope of the insurance they are purchasing. We live in a world where it is more likely than not that COVID-19 is going to be an endemic disease, one that could potentially cause hassles and headaches for businesses for years to come. We also live in a world where a number of what would previously be events from a science fiction novel can impact business income – be it extreme weather events or the next pandemic. As such, businesses that want to obtain coverage for such emergency events should take extra care to ensure that the language of their insurance policy covers, rather than excludes, these events. A good starting point is to consult with your insurance agent to find the right policy to fit your needs, but an experienced lawyer can also be of assistance.