Thought Leaders: Recovering Your Losses – Business Interruption Insurance and COVID-19

Though businesses in northern Nevada are reopening, many will continue to struggle to make up for lost revenue and decreased demand stemming from the COVID-19 pandemic.

Businesses that were forced to close may want to consider recourse to business interruption insurance as a potential source of recovery for those losses.

What is business interruption insurance?

Business interruption insurance covers lost business income caused by certain types of disruptions. It is often part of a commercial property or comprehensive business policy.

Coverage typically includes net income lost due to the business interruption as well as certain operating expenses such as payroll, rent, utilities and temporary or one-time extra expenses associated with allowing the business to continue operating.

Businesses should review all of their insurance policies to determine if interruption coverage is available. Many may be unaware they carry such a policy.

Will my policy cover closure caused by COVID-19?

The terms of the specific policy will control whether coverage is available. Owners considering making a claim should carefully review the policy and its endorsements and exclusions with their advisors to determine whether closure due to virus or other disease is explicitly covered or excluded.

Unfortunately, many policies may not apply to losses due to COVID-19. Business interruption coverage commonly requires physical property damage, such as that caused by a fire. Policies also often exclude losses caused by viruses and disease.

Many insurance companies have already issued statements that losses due to COVID-19 closures are not covered. However, there is no industry-wide standard as to whether or not closures caused by disease are covered. Some policies may cover such losses.

Others explicitly include coverage for income lost when a governmental authority prohibits access to the business (though some such polices may only cover a closure resulting from physical property damage).

Those with business interruption insurance should consider filing a claim for lost income, even if the policy appears to exclude coverage. The COVID-19 pandemic has raised unprecedented legal issues and has spurred proposed legislation around the country that may result in available coverage, even if a policy does not appear to apply.

Failure to file a timely claim could result in a business losing rights, the existence of which may not yet be clear.

What should I do if my claim is denied?

A business and its advisors should review the insurer’s basis for denying the claim and, if that denial is for a reason that is easily corrected, consider promptly supplementing the claim. Claims may be denied for reasons as simple as missing paperwork.

If a business needs to appeal a denial for lack of coverage, the claims appeals process in the policy documents should be followed carefully.

Policyholders or their representatives should note any deadlines to appeal and make sure they are observed. Care should be taken to ensure that all documents required to be submitted as part of an appeal are included.

What if my appeal is denied?

Businesses may want to consider taking legal action, and retention of knowledgeable and experienced counsel who can properly analyze the policy may be critical. Nevada courts interpret unclear insurance contract provisions in favor of the insured.

Able counsel may be able to persuade a court that an ambiguous policy covers COVID-19-related losses. The law in this area is rapidly evolving.

Proposed federal legislation, as well as laws pending in several states, may void the physical damage requirements for coverage or virus exclusions.

Additionally, businesses nationwide have filed lawsuits challenging claims denials. Counsel who is actively monitoring such developments and who can advise on the up-to-the-minute state of the law may be the difference between a lawsuit that prevails and one that does not.

To find more information on the potential availability of business interruption insurance coverage, as well as a host of other legal and business issues raised by the pandemic, refer to Snell & Wilmer’s COVID-19 Resource Center at www.swlaw.com/covid-19.

Kiah Beverly-Graham is an associate attorney with Snell & Wilmer in Reno. Snell & Wilmer sponsors this content.

Though businesses in northern Nevada are reopening, many will continue to struggle to make up for lost revenue and decreased demand stemming from the COVID-19 pandemic.

Businesses that were forced to close may want to consider recourse to business interruption insurance as a potential source of recovery for those losses.

What is business interruption insurance?

Business interruption insurance covers lost business income caused by certain types of disruptions. It is often part of a commercial property or comprehensive business policy.

Coverage typically includes net income lost due to the business interruption as well as certain operating expenses such as payroll, rent, utilities and temporary or one-time extra expenses associated with allowing the business to continue operating.

Businesses should review all of their insurance policies to determine if interruption coverage is available. Many may be unaware they carry such a policy.

Will my policy cover closure caused by COVID-19?

The terms of the specific policy will control whether coverage is available. Owners considering making a claim should carefully review the policy and its endorsements and exclusions with their advisors to determine whether closure due to virus or other disease is explicitly covered or excluded.

Unfortunately, many policies may not apply to losses due to COVID-19. Business interruption coverage commonly requires physical property damage, such as that caused by a fire. Policies also often exclude losses caused by viruses and disease.

Many insurance companies have already issued statements that losses due to COVID-19 closures are not covered. However, there is no industry-wide standard as to whether or not closures caused by disease are covered. Some policies may cover such losses.

Others explicitly include coverage for income lost when a governmental authority prohibits access to the business (though some such polices may only cover a closure resulting from physical property damage).

Those with business interruption insurance should consider filing a claim for lost income, even if the policy appears to exclude coverage. The COVID-19 pandemic has raised unprecedented legal issues and has spurred proposed legislation around the country that may result in available coverage, even if a policy does not appear to apply.

Failure to file a timely claim could result in a business losing rights, the existence of which may not yet be clear.

What should I do if my claim is denied?

A business and its advisors should review the insurer’s basis for denying the claim and, if that denial is for a reason that is easily corrected, consider promptly supplementing the claim. Claims may be denied for reasons as simple as missing paperwork.

If a business needs to appeal a denial for lack of coverage, the claims appeals process in the policy documents should be followed carefully.

Policyholders or their representatives should note any deadlines to appeal and make sure they are observed. Care should be taken to ensure that all documents required to be submitted as part of an appeal are included.

What if my appeal is denied?

Businesses may want to consider taking legal action, and retention of knowledgeable and experienced counsel who can properly analyze the policy may be critical. Nevada courts interpret unclear insurance contract provisions in favor of the insured.

Able counsel may be able to persuade a court that an ambiguous policy covers COVID-19-related losses. The law in this area is rapidly evolving.

Proposed federal legislation, as well as laws pending in several states, may void the physical damage requirements for coverage or virus exclusions.

Additionally, businesses nationwide have filed lawsuits challenging claims denials. Counsel who is actively monitoring such developments and who can advise on the up-to-the-minute state of the law may be the difference between a lawsuit that prevails and one that does not.

To find more information on the potential availability of business interruption insurance coverage, as well as a host of other legal and business issues raised by the pandemic, refer to Snell & Wilmer’s COVID-19 Resource Center at www.swlaw.com/covid-19.

Kiah Beverly-Graham is an associate attorney with Snell & Wilmer in Reno. Snell & Wilmer sponsors this content.