What if My Policy has a Virus Exclusion Clause?

For at least fifteen years, commercial insurers have been excluding coverage for viral and bacterial infestations from their business interruption policies. Many New York businesses that are now looking to their commercial insurance to cover losses from COVID-19 enforced shutdowns are concerned. Their fear is this exclusion will preclude their ability to recover any insurance reimbursement for those losses.

Before reaching that hasty conclusion, businesses should call the law firm of Douglas & London to speak with a New York City business interruption attorney about the coverages and exclusions in their policy. The contractual language in an insurance policy may be subject to different interpretations. Therefore, a knowledgeable and experienced lawyer may find a valid basis to file a business interruption claim even if a policy has a virus exclusion clause.  

What is Precluded by a Virus Exclusion Clauses?

Viral and bacterial infection clauses are most often included in specific riders in business interruption insurance policies. Commercial insurers began including them in their policies. They did this after they faced claims from hotels and other businesses that suffered substantial losses due to cancellations associated with SARS and other disease outbreaks.

The most common rider language, however, refers to physical loss or damage to property as a result of a virus. Yet, the losses that businesses are experiencing from COVID-19 are arguably more related to official quarantine orders. Under these circumstances, an organization may still have a valid claim for business interruption losses even if its policy includes a virus exclusion clause.

What Other Business Interruption Provisions Might Exclude Coverage for Virus-Related Losses?

Commercial insurers have become very creative in developing policy riders and exclusionary language that limit or preclude coverage for losses caused by:

  • communicable diseases;
  • physical distress or extended illnesses;
  • sickness-related supply chain or manufacturing interruptions;
  • other forces perceived to be within a “force majeure” exclusion.

Those insurers have already begun to make these arguments in some of the early insurance lawsuits based on COVID-19 business losses. Many of them have been filed by restaurants and other low-margin companies in the service industries. They experienced devastating cash flow and revenue impairments when civil authorities imposed stay-at-home and quarantine orders.

Variations in insurance contract language and the different facts in each of those lawsuits make it challenging to determine whether the claimants or the insurance companies will prevail. Regardless, businesses should not hesitate to start the claims process. First, they should begin reviewing their options under their business interruption policies. Second, they should file and aggressively pursue their claims with the assistance of an experienced attorney.

How Can a Business Improve its Chances of Prevailing in a Coverage Dispute over a Virus Exclusion Clause?

Regardless of whether an insurance policy includes a virus exclusion clause, no organization will succeed in a business interruption insurance claim dispute– if it cannot demonstrate its losses. At a minimum, insurers will want to see detailed financial records from before and after the loss-inducing quarantine. The business should also notify its insurance carrier that it intends to file a business interruption claim.

The insurance company will generally respond with a reservation of rights or some other declaration that it is reviewing policy coverage– and its contractual obligation to indemnify the insured business for its losses. Even if the company anticipates that its claim will be denied because of a virus exclusion rider or some other policy language, it should nonetheless begin its claim because filing delays can give an insurer further cause to deny coverage.

Does a Business Need to Sue Its Insurer if Coverage is Denied Because of a Virus Exclusion Clause?

Insurance coverage lawsuits are only one of several tools that an attorney will use to negotiate a favorable outcome in a dispute. A lawsuit will give the attorney significant leverage in negotiations, and they will know to set up a coverage request favorably for a client as early as is possible in the claims process.

New York businesses should contact Douglas & London to review all available options before an insurer gains an initial advantage through an early denial of a claim.

Call Douglas and London to Understand Your Options if Your Business Interruption Insurance Includes a Virus Exclusion

We have many years of experience in representing clients in business interruption coverage disputes, including reversing denials of coverage due to virus exclusions and other limiting clauses. Please see our website or call our Manhattan offices directly to speak with one of our attorneys about your claim and your opportunity to recover your COVID-19 business losses.

Resources:

  1. www.washingtonpost.com: Insurers Knew The Damage The Pandemic Could Wreak on Businesses, So They Excluded Coverage. https://www.washingtonpost.com/business/2020/04/02/insurers-knew-damage-viral-pandemic-could-wreak-businesses-so-they-excluded-coverage/
  2. www.propertycasualty360.com: Here We Go Again: Virus Exclusion for COVID-19 and Insurers. https://www.propertycasualty360.com/2020/04/07/here-we-go-again-virus-exclusion-for-covid-19-and-insurers/?slreturn=20200511203036