Steven Bush and Chris Hand
April 15, 2020
Since Hand Law is focused on government, we are providing updates on how policymakers are responding to COVID-19 – and what those responses mean for you. This fifth article, co-authored with attorney Steven Bush of the Bush Law Group discusses the growing bipartisan interest in helping small businesses cover pandemic financial losses with business interruption insurance policies.
COVID-19 PUBLIC HEALTH UPDATE
The latest State of Florida report (Wednesday, 4/15 at 10:43 AM) shows 22,081 total cases. Please track statewide data and county information.
BIPARTISAN INTEREST IN BUSINESS INTERRUPTION COVERAGE
Small businesses are the backbone of the local economy. Restaurants, retail establishments and other companies have suffered huge financial losses due to COVID-19 – in many cases because governments have shut down business operations. While the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act and local initiatives like the City of Jacksonville/VyStar Credit Union partnership are important tools to provide small business capital, now is a time when business owners need every available option at their disposal.
Proprietors have sought and been denied coverage under the business interruption provisions of their commercial property insurance. In some cases, the denial of coverage relates to a specific policy exclusion for virus-related losses. But even in cases where exclusions do not apply, COVID-19 claims have been denied on the contention that COVID-19 does not cause property damage for which related lost income can be paid. Since public health experts believe the virus can be spread via physical surfaces, and governments have mandated business closures or operational limitations to minimize COVID-19 transmission, that contention is controversial.
The last few weeks have seen a growing bipartisan interest in facilitating payment of business interruption claims. On Friday, April 10, President Trump raised the subject at his daily press briefing:
I’d like to see these insurance companies pay if they need to pay, if it’s fair…you have people that have never asked for business interruption insurance and they’d been paying a lot of money for a lot of years for the privilege of having it and then when they finally need it, the insurance company says we’re not going to give it. We can’t let that happen.[1]
The President is not the only elected official to raise concerns. In late March, a bipartisan group of U.S. House members asked insurance carriers to “recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.”[2] U.S. House Financial Services Chairwoman Maxine Waters is reportedly drafting legislation to create a Pandemic Risk Reinsurance Program in which the U.S. Treasury Department and insurance carriers would share responsibility for paying business interruption claims. As with the Terrorism Risk Insurance Act, which Congress passed after the 9/11 attacks, the U.S. Treasury would serve as a reinsurer to backstop insurance carriers’ losses in exchange for their agreement to pay claims.[3]
Past Judicial Decisions May Support COVID-19 Business Interruption Coverage
[4]These bipartisan actions are consistent with past decisions from another branch of government. Courts have previously ruled that external pollutants or pathogens cause damage to physical property. In Gregory Packing, Inc. v. Travelers, No. 2:12-cv-04418 (D.N.J. Nov. 25, 2014), the U.S. District Court for New Jersey held that property had been sufficiently damaged to invoke business interruption coverage when released ammonia made a building unsafe for habitation. As the Court explained, “property can sustain physical loss or damage without experiencing structural alteration.” In Motorists Mutual Insurance Co. v. Hardinger, 131 F. Appx 823, 826-27 (3d Cir. 2005), the U.S. Court of Appeals for the Third Circuit ruled E. Coli in a residential water-well counted as property damage. According to the Court, the correct legal standard was “whether the functionality of the property was nearly eliminated or destroyed, or whether the property was made useless or uninhabitable” by the bacteria.
According to public health experts, “[c]urrent evidence suggests that [COVID-19] may remain viable for hours to days on surfaces made from a variety of materials” and “people may acquire the virus…after touching contaminated objects.[5] In light of these findings, common sense suggests the presence of COVID-19 on restaurant tables, desks, merchandise, and office equipment results in physical damage to property not unlike ammonia or E. Coli in the above-referenced cases. With nearly 525,000 Americans testing positive for COVID-19, and governments closing businesses to limit additional spread, this virus is even more impactful.
More courts will soon determine if COVID-19 triggers business interruption coverage. Numerous businesses – including California restaurants, a Washington, D.C. sports bar, an Illinois dental office, and Indiana and Texas theater companies – have filed suit to enforce their policies.[6] Here in Florida, a Tampa sports grill and Florida Keys underwater dive guide service have also initiated litigation seeking coverage.
Possible Local Government Role in Business Interruption Coverage
State and local governments may be able to help small businesses by issuing executive orders which make clear COVID-19 does cause property damage. Florida localities like Broward County, Escambia County, Hillsborough County, Pinellas County, St. Lucie County, Key West, North Miami, Oakland Park and Pensacola have already declared the virus a source of property damage in civil authority and/or safer-at-home orders. Except for the City of Pensacola order, which is attached, please find those resolutions at the below links:
City of Pensacola (see attachment below)
While there is no guarantee that states, cities or counties adding property damage language to emergency orders will impact coverage determinations, its inclusion may help small businesses demonstrate official recognition of property damage from COVID-19. Perhaps the simplest formulation is one that several jurisdictions have utilized:
“WHEREAS, this Order is necessary because of the propensity of the virus to spread person to person and also because the virus is physically causing property damage due to its proclivity to attach to surfaces for prolonged periods of time;”
Small business owners with business interruption insurance should review their policies, contact their carriers or agents with questions, and file claims if they feel they have suffered a covered loss. They should also share their perspectives with elected representatives considering the overall business interruption coverage issue.