One Year Into the Pandemic: Business Interruption Claims Best Practices
In March 2020, a wave of stay-at-home and similar orders by municipalities and states swept across the country as governments and public health officials took significant actions to help prevent the spread of COVID-19. In the year since, many businesses have suffered considerable financial losses and operational disruptions — and may soon face important deadlines in filing insurance claims.
A number of policyholders have notified losses under their property and business interruption policies, with their claims for recovery at varying stages of advancement. Others appear to have adopted a wait-and-see approach, perhaps because they were unsure of the effects on their business or of how an initial round of legislative and litigation efforts would play out. Those policyholders in the latter category, which may still have losses to report, should do so without further delay to reduce the risk that their recovery rights are affected.
The road to recovery for this unprecedented set of claims may be long and challenging. Still, following standard claims best practices — including diligently developing claims, providing insurers with supporting documentation, communicating clearly and regularly with stakeholders, and devising thoughtful recovery strategies — can position policyholders for better outcomes.
The Current Claims Landscape
A number of first-party property and business interruption claims have been filed in the last 12 months, with varying results:
- A relatively small number of claims — typically submitted by companies seeking recovery under specific sublimited coverage extensions — have been adjusted and paid.
- In some cases, insurers have issued reservation of rights letters, made requests for information to aid in their investigations, and proceeded with the measurement of claims.
- Insurers have denied claims, citing a variety of reasons. These include the asserted absence of a physical damage trigger and the invocation of pollution/contamination and virus exclusions and other policy language.
- A growing number of claims are now the subject of litigation in federal and state courts.
Due to stresses on their businesses and incomplete loss information because of the pandemic’s ongoing nature, policyholders may have been holding off on presenting claim information to insurers. Some insurers, however, have begun to press for insureds to do so, sometimes pointing to an insured’s duty to cooperate with the claim investigation.
While it may not be possible for all policyholders to present full claim details at this time, working with insurers to provide available information is the better course. Insureds may continue to reserve their rights to add to or amend claim details.
Time-Sensitive Policy Provisions
Insurers may insist on submission of formal proofs of loss, with some policies specifying the time periods in which an insured must provide the proof. In some cases, the proof of loss is to be submitted upon an insurer’s request; extensions are possible, but not granted by all insurers.
Insureds may also face policy-imposed time limitations on actions to pursue claims under their property and business interruption insurance policies. Many property policies specify the time period in which a policyholder must bring suit seeking payment of a loss. The relevant policy provisions are sometimes entitled “Suit Against the Company” or “Legal Action Against The Company,” but headings vary. The time frames specified and the triggering event for those time periods to begin also vary by policy. A policy’s allowable time to bring suit could be a short as 12 months from the inception of loss.
Insureds whose policies specify a 12-month or one-year time period to bring suit may now be approaching that deadline. Policyholders should note that some provisions state that the applicable time period will begin to run from the start of the loss — not from the first notice of loss to insurer(s). Policyholders that believe they have compensable claims but, for whatever reason, have not yet notified claims under their policies should also be mindful of these provisions and their potential effects.
Insureds should review the pertinent policy provisions with care and consider — with the advice of their legal counsel — whether they wish to take any action. Insureds that elect not to take any action may see their rights under their policies affected or impaired. Some insureds have requested extensions of the time period specified in their policies, but insurers have refused a number of such requests. Businesses and their counsel should therefore plan accordingly.
Coverage Litigation Overview
As of this writing, approximately 1,500 COVID-19 coverage lawsuits are pending in state and federal courts, according to a Marsh review of several sources, including the University of Pennsylvania’s Covid Coverage Litigation Tracker. Additional suits are being filed regularly.
Many of these suits involve policyholders seeking business interruption coverage as well as coverage under civil authority and/or extra expense provisions of property policies. A smaller number involve coverage under event cancellation, liability, or other policies. Policyholders from the restaurant and food and beverage industry have filed the most suits, followed by health care, laundry/personal services, and hospitality and gaming.
So far, approximately 160 courts have issued decisions, the vast majority at the motion to dismiss stage. More than 80% of these decisions have granted insurers’ motions to dismiss, although courts have at times provided policyholders with an opportunity to reframe their allegations. A handful of courts have decided summary judgment motions, with some rulings favoring insurers and other favoring policyholders, and several appeals are pending.
Broadly speaking, the decisions to date address policyholders’ allegations that the virus that causes COVID-19 — or related government shutdown orders — constitutes “direct physical loss of or damage to property.” Some courts have ruled that applicable laws require tangible or structural damage to property and that the actual or suspected presence of the virus that causes COVID-19 cannot satisfy that requirement, while others have indicated that allegations of “loss of use” of the property may be sufficient to trigger coverage. Some rulings have also relied on the presence or absence of a virus exclusion in the policy.
Litigants in coverage disputes may seek to draw parallels with or distinctions from the growing body of decisions across federal and state courts. Such comparisons may be more or less persuasive based on the specific allegations, jurisdictional law, and policy language involved.
Although aspects of COVID-19 claims may be unique, policyholders should be mindful of the basics and recommended practices for presenting claims of any kind. As they develop and present claims to insurers, businesses should focus on documentation related to:
- Potential coverage triggers, including the presence of COVID-19 on insured property and the prevention or impairment of access to insured property due to an act of civil authority.
- The costs of efforts to ready insured property for use, including sanitization and cleaning measures.
- The operational effects on policyholders’ business, the specific cause(s) of those effects, and the ensuing financial impacts.
Policyholders’ claims teams should ideally be multidisciplinary and include personnel with appropriate experience in advocacy, accounting, engineering, health and safety, and other relevant subject areas. Some information requested by insurers may be subject to privacy laws, so a policyholder’s claims team should be prepared to review responses to insurer requests for compliance. As with any claim, ongoing and clear communication between a policyholder’s claims team and the insurer’s claims team is crucial.
Each insured should consider how best to proceed with respect to its specific claims and circumstances, potentially with advice on legal matters from counsel. Marsh stands ready to assist clients by providing input on insurance matters based on the experience of our colleagues as claims professionals and insurance brokers.
For more details and guidance on property and business interruption claims amid the pandemic, contact your Marsh representative.