We are here to consult with you and provide advice as to whether the losses your businesses are suffering may potentially be recovered from the insurance policies you have purchased to protect against those losses.
The Chicago Tribune headline in the business section on April 19, 2020 decried “WITH OUTBREAK COMES OUTRAGE” as business owners may expect insurance to cover their losses. Often, they are in for a shock.
Prudent business owners purchase comprehensive property insurance policies which they believe will cover them for unexpected business losses and interruptions outside of their control. The foresight to protect against the unknown is what this insurance is believed to be about. As a result of the COVI-19 pandemic, there is a staggering contingent of business owners in the Chicagoland area and across the country who are having their valid claims for business interruption and lost revenues summarily denied by their insurers.
If you’ve been denied an insurance claim for your business losses due to COVID-19, contact McCallister Law Group today to speak to an attorney for free.
CALL 312-600-8055 NOW
CORONAVIRUS ISSUES
Coverage and Legal Theories
The following are phases during which losses have been or will be suffered:
Phase I: The period before any governmental orders in which the insured sustains loss of business because of fewer customers, voluntary shutdowns and so forth, which can be attributed to the virus.
Phase II: The period of time when the business is shut down because of governmental orders.
Phase III: The period of time when the civil authority coverage ends, but the business remains shut down because of governmental orders, which is due to the limited civil authority coverage period (eg., one month coverage).
Phase IV: The period of time when the civil authority orders are lifted but the business remains shutdown because the insured does not have the employees, supplies, customers, etc. to start the business.
Phase V. The period of time when the insured is conducting remediation of their business to make sure that it is clean for use.
Phase VI: The period of time that it takes the insured to ramp the business back up to where it was before the initial slowdown (Phase I) and the reopening of the business. Under business interruption coverages this is often limited to 60 days or some other limit.
Phase VII: The period of time after the expiration of the contingent business interruption expires and the business finally is able to fully ramp back up. This assumes that the business is not able to fully ramp back up during the period of contingent business interruption coverage.
First, our goal in investigating a client’s claim is to explore how the components of business interruption coverage may apply to each of these phases, some of which will likely overlap. Some coverages are obvious, such as the closure because of civil government orders and the contingent business interruption period, but others are not. Thus there may be gaps in the business income coverage that must be analyzed with the goal of covering all of these phases, if possible.
Second, we have concerns about the coverage for payroll under either (or both) the basic business interruption coverage and the extra expense coverage. Given the significant loss of jobs, the availability for coverage for payroll for any of the above phases will directly correlate with the evolving unemployment picture. For insurers to refuse coverage for payroll will put the insurance industry in a very negative light given the significant unemployment. The need to explore the availability of coverage for payroll may determine how quickly claims for payroll can be made. This may turn out to be one of the most important business income loss coverages and the one most difficult to defend against by the insurer.
Third, given the need for businesses to get cash in hand quickly in order for the businesses to survive and avoid bankruptcy, or to avoid losing valuable and essential employees that will be needed when the businesses can reopen, retain distribution lines of supply and distribution, etc., what form of legal proceeding with corresponding remedies should be considered, for example, filing for declaratory relief, rather than filing an action which also seeks damages. There are pros and cons to both avenues, but the client’s situation may dictate the proper course of action
Fourth, what are the most persuasive processes for presenting the insured’s claims? What types of documents or information should the insured be providing as quickly as possible? We will discuss this with our clients once we become acquainted with the internal aspects of the businesses they operate and establish a protocol for collection and retention of supporting documents.
Fifth, proof of the presence of the virus will be required in order to succeed. A discussion about the burden of proof, both scientifically and practically, will demonstrate what must be shown under the typical language of these policies in order to prevail for this element of the claim.
The above information and questions are provided to frame some of the issues our clients will confront in litigating these claims and to afford you an opportunity to begin considering what efforts and resources may be required to investigate and prepare the submission of a claim and the filing of a lawsuit if necessary.
Business Interruption Insurance and COVID-19
Business interruption insurance, which may also be known as business income insurance, is often part of commercial property insurance coverage. Such insurance may cover business owners or tenants for their loss of income due to suspension of operations or property owners and landlords due to loss of rental income due to the loss of use of a rented space. What is covered depends on the type of business. For most businesses who have this coverage, it will cover “net income” that would have been earned or incurred and continuing normal operating expenses incurrend, including payroll. For manufacturers, “net income” includes the “net sales value” of production.
A detailed review of your complete insurance policy, including all declarations, forms and endorsements, is necessary to determine your coverage and rights under the policy. In the setting of this pandemic, the “business income and extra expense” coverage is particularly important to the survival of a business. This coverage is typically provided in a specific form that is endorsed to the policy and for which a separate premium has been charged. A policy may also contain a “civil authority” clause that covers list income if a government denies access to a business such as if a fire at a neighboring property has made the area unsafe.
In an ordinary property damage circumstance, such as fire or natural disaster related damage to property, this coverage is triggered when property is damaged or made unusable as a result of the fire or other natural disaster. In this scenario, a slowdown or shut down of a business operation is caused by direct physical loss of or damage to property which is the result of a covered cause of loss. Actual loss must be suffered.
General insurance law provides that coverage is provided under the insuring clause of a policy and benefits will be paid unless coverage is expressly excluded by approved policy language. Due to past experience with another coronavirus, severe acute respiratory syndrome, or SARS, in 2002-2004, some insurers included in their policies exclusions for viruses. Current insurance may or may not have these exclusions. This is critical to know in order to evaluate the merits of your claim for business losses.
Today’s environment confronts business owners with financially ruinous circumstances when they reasonably believe they have insurance for the unforeseen risk of COVID-19. The key question which will determine your path to recovering these substantial business losses is whether the presence of the coronavirus and the state mandated business closures constitute “property damage and physical loss of use” necessary to trigger coverage. If it is determined the policy provides coverage for business income losses, and there is no exclusion for a virus, then there may well be coverage for the loss. If there is an ambiguity in the policy of insurance between the part of the policy granting coverage and the language attempting to exclude coverage, then the policy of insurance will be construed against the insurer and in favor of the insured business.
Contingent business interruption insurance covers losses due to supply chain disruptions. This may be limited to economic losses, typically including increased costs from loss due to reduced operations resulting from physical damage on the premises of a named or unnamed supplier. Usually the supplier must be scheduled in the policy and this coverage generally requires direct physical loss to property of the supplier.
There is minimal case law on viral pandemics. Courts have found that the presence of dangerous substances like ammonia or asbestos can be considered damage even if they don’t physically alter the property. Recovery has also been allowed where businesses were closed by order of the civil authority finding that physical damage to the insured premises was not a prerequisite to the insurer’s obligation to reimburse a business for the net loss it suffered. Another example is where flooding caused by a hurricane cut off access to a manufacturing facility, recovery was permitted despite the lack of physical harm to property.
The documentation of your claim, your past and continuing losses, and any denial by your insurer is important in the evaluation of your claim as well as your complete insurance policy.
McCallister Law Group has years of extensive experience in representing business owners who have suffered loss as a result of insurance companies denying meritorious claims. We are here to consult with you and provide advice as to whether the losses your businesses are suffering may potentially be recovered from the insurance policies you have purchased to protect against those losses. We are not paid for our representation of you unless you prevail in the recovery of your business losses.
Please feel free to call our firm at: 312-345-0611 and we will schedule a call or video consultation for you with one of our attorneys.
Contact McCallister Law Group for a free, confidential case evaluation using the form provided or by calling 888-293-4952.
