April 9, 2020

Business Interruption Insurance and COVID-19

This episode of Point By Point was produced prior to the combination of Waller and Holland & Knight.

Welcome to PointByPoint, conversations, interviews and legal commentary for today's business professionals, brought to you by Waller.

Today we are discussing business interruption insurance in the coronavirus era. Some say it could be a lifesaver for companies, others say it will be worthless. In the end, as with most things in life and insurance, the truth lies somewhere in between and will depend on a number of factors.

Waller's Mark Bell joins us to separate fact from fiction.


Host: All right, welcome to PointByPoint. With me today is Mark Bell, a partner whose practice focuses on insurance coverage and litigation matters. Thanks for joining us, Mark. To kick things off, can you set the landscape for us? What are you hearing from clients as it relates to COVID-19 and the impact on business?

Mark: Yeah, thanks very much for having me today. We've been following the topic very closely. I think the biggest question that I've been hearing is “do I have insurance coverage for this?” And to do that, we kind of need to set the stage a little bit as we think through whether there is or isn't coverage. It is always going to depend on the language of the policy and the jurisdiction that's in question. Those two pieces are going to have a tremendous impact on whether or not there will be coverage. There's not a uniform answer of yes there is coverage or no, there is not coverage. It's all going to depend on the specific policy language at issue and the jurisdiction where that's going to take place.

Host: Can you give us a couple of examples of states, maybe that look at it differently? Are there differences that you can spell out in terms of how states interpret these policies?

Mark: Yes, sure. Different states will have different rules of contractual interpretation and insurance policy interpretation. For an example, some states will follow what's called the reasonable expectations doctrine, where they will basically take the position that whatever is the reasonable expectation of the policy holder, if it's supported by the policy language, there will be coverage for that. Other jurisdictions are not as policy holder friendly, where they don't give any credence whatsoever to the policy holder’s expectations.

Host:Mark, I’m curious. So let's say that I have a policy in place. Are their key phrases or key things that I should be looking for as a business owner to make an argument that I would be covered? What are some key things I need to be looking for in my policy and in the specific verbiage that can help me understand if I'm covered?

Mark: There's not a uniform policy, so I'll give some sort of overviews, and there's two pieces of the policy that are going come into play. First is the coverage grant or, basically, what is going to be covered by the policy. There's not a uniform insurance policy, but the Insurance Services Office provides policy forms and endorsements, and many insurance carriers will take those forms or endorsements and either not for them verbatim, or they'll have minor tweets and modifications to them. But a lot of the policies are going to be based on that similar language.

In the Insurance Services Office, there are really three coverage grants. There's what's called a narrow form or limited form, there is a broad form, and then there's a  special form. The basic form, which is the limited form, will cover certain specific perils, and if a peril is not listed on there, you'll have no coverage for it. So in those if you've got a basic policy, it's called a basic form policy in the ISO language, it'll be tricky to find because you won't see viruses or contaminants or pandemics listed there. There's a broad form which sort of follows the same trajectory. That is, if something is specifically listed as covered, you have coverage for. Again the broad form does not have a pandemic, virus or anything else type of coverage grant. So those two policies are going to be very difficult to get coverage under. The third form is what's called the special form policy, which basically is also routinely called the all-risk policy. And what that means is that basically all risks of lost are going to be covered unless they are excluded. So that's the policy that is the most likely to be able to provide coverage is the special or all-risk type policy. Now again, not all all-risk policies are going to cover the coronavirus or COVID-19, but at least in that area you'll have a much better chance of coverage than you would have in the basic policy language.

Host: Sure, it sounds like it really depends on the policy, and the policies may be different. The jurisdiction and interpretation may be different. So it sounds like there's a lot of unanswered questions that I'm sure we're going to be sorting out in the weeks and months to come. Are there certain actions, though, that our listeners should and could be taking now, either in terms of documentation or just trying to get a handle on what would be a part of a claim? Can you walk us through what they could be doing right now, even though they don't know for certain that it’ll be covered, but at least in terms of, to be able to start to make that argument or start to be able to get a handle on what could be involved in a claim?

Mark: Yeah, absolutely. The first, the most important piece, is actually getting your handle on the physical policies or electronic version of the actual current policy. A lot of times we’ll have clients that'll send us a policy to review, and the coverage period will be 2018 or 2019 and won't cover the current period. So that's going to be the first step is to actually get the current policy that’s in place. The policies can change over time. Occasionally, brokers may place it with a different insurance carrier all together, where the old policy will have no application whatsoever for what's going on today. So the first part is to get a full copy of the full policy. A lot of times clients will have maybe a certificate of insurance or they'll have a few pages of the policy, but really, to be able to analyze it and determine whether there's coverage, you need to get the current full version of the policy of what's actually in place today. That's the first step, obviously, is to get that policy.

And then the second is to take it, to review it, and to be able to review the actual language. You may want to look to somebody that has experience in interpreting these things. A lot of times just simply asking the broker or agent whether something is covered or not, you may not get a fulsome answer as to whether that specific policy does cover it. A lot of brokers and agents are saying that either there is coverage for COVID or there's no coverage for COVID. More agents than not are saying that there is not coverage for COVID, but it's one of these things where there's not again a uniform answer that all these things are covered or they're all excluded.

Host: All right, thank you. Well, let me ask this question. So is there a particular point that, if I'm a business owner, I would want to get legal counsel involved either in reviewing the policy and helping to make that case, or at what point would you advise clients to seek out counsel on helping sort this out?

Mark: I think that it doesn't hurt and it’s worth it to get somebody involved right away. I know for a lot of clients, we are doing just no cost or charge reviews for some clients, if nothing else is requested or warranted, just to give a little overview advice as relates to the policy in question. I know a lot of other lawyers are doing the same thing of saying, these are the issues that you're going to have. Here are the sharp spots of your particular policy on your particular jurisdiction so that business owners have a better sense of whether they have any chance of recovering under their policy, or they have a very, very, very, very small, infinitesimal chance of getting any coverage. So I think getting somebody involved early, it makes a lot of sense, just so that way you can plan as a business owner whether you have a shot of recovery or whether there's really not much of a chance.

I will add the caveat, too, that there are a number of jurisdictions, I think currently there are four jurisdictions, where in the state legislature there are either bills that have been introduced or that are working their way through where state legislatures are attempting to put in legislation that would require insurance companies to cover coronavirus-related business interruption losses. It's very, very early in that stage. No jurisdictions have actually passed any of those yet, and also there will certainly be challenges to those down the road of whether they're enforceable, whether they violate state or federal constitutions or ex post facto type laws, so that's going to be something that’ll sort itself out over the longer term. But that is something that may play in your particular jurisdiction down the road of being able to understand whether the legislature is going to actually legislate for coverage in certain circumstances.

Host: It's also my understanding that within the House of Representatives, there's been at least some discussion about kind of that on a broader level. Do you have any insight into kind of anything that might be happening at the federal level?

Mark: Yeah, a few weeks ago there was a bipartisan group of 18 members that requested that insurers cover business interruption losses. That was not well received, that has not gone forward at this point. I've seen a number of different things in publications that insurers are estimating the losses that would result from covering all of these claims for all related businesses will be absolutely crippling to the insurance industry and that they wouldn't be able to do it. I think that will be a challenge at the federal level. I think at the state level that's going to be a challenge to, but it is definitely worth watching and worth keeping an eye on.

Host: Is there any advantage to going in and starting this process early? Are business owners okay if they kind of wait a few weeks until things kind of roll out a little bit, they get a chance to see the full impact. Is there anything in regards to timing that business owners should be thinking about?

Mark: With any insurance coverage, the timing is always important and providing notice to carriers as soon as possible is definitely preferred. You can be harmed by providing noticed too late. In some jurisdictions. if you don't provide timely notice, you can actually lose coverage altogether. So it's very important to get the notice in as soon as reasonably practicable. Even if you don't know just full extent of the losses, it doesn't hurt to provide notice, and we will get that process started. If you don't provide notice and you decide to wait six months, nine months, a year to figure out what the total amount of losses are, how things are going to shake out, you may be faced with a harder battle on coverage because you didn't provide timely notice to the insurance carrier.

Host: So, last question. Obviously there's a lot of uncertainty right now. Is there any way to give a realistic timeline? So let's say that you're insurer does provide some level of coverage and some level of payment, any kind of an idea of a timeline of when business owners might be able to see some of this? Or is it going to be a pretty long process to actually see funds that they can start using?

Mark: It will likely be a bit of a process, and it's again determined that someone could be depending on jurisdiction. Some jurisdictions have requirements for how promptly insurers have to pay claims. Other jurisdictions don't have those same requirements or have different requirements. As far as how promptly insurers have to turn around and pay the claims, I think in most circumstances you would likely have to wait out the waiting period, so you could know for sure this whole amount of damages that you're seeking, and then be able to commit the final and formal claim at that time and the insurer would have a certain amount time to be able to respond to that and be able to pay out the funds. So it's not going to be something in the next, I would be shocked if there was something where somebody got paid in the next 30 days or probably even 60 days. I think that's probably far too optimistic. I know that there are a few lawsuits now. There’s been lawsuits in several different states seeking coverage. So when lawsuits are filed, obviously that extends that duration of the claim process significantly, too. So I think it's going to be a long fight, and I'm hopeful that payments start getting made and issued early on, but I think it may be a while before people start seeing funds as it relates to the business interruption coverage for coronavirus.

Host: Excellent. Great feedback and great advice. Mark, we know it's a busy time right now. We thank you so much for coming on the podcast, and we look forward to talking to you again real soon.

Mark: Sounds good, thanks so much for having me.


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