As we all know, Pennsylvania’s Governor, Tom Wolf, ordered all “non-life sustaining” businesses to be closed effective 8:00pm on Thursday, March 19, 2020. Although the list of “life-sustaining” businesses was expanded late on Friday, March 20th, the reality of the situation is that most businesses are required to close, there is a hard deadline for closures beginning Monday, March 23, 2020, and business owners that do not adhere to this order could be subject to fines, loss of business licenses, criminal penalties, and the ability to file for and receive disaster aid.
A common question clients are asking is whether or not insurance coverage is a viable mechanism to recover lost profits. Business interruption insurance, also known as business income insurance, is a type of insurance that covers the loss of income that a business may suffer after a disaster. Although some business insurance policies do include this coverage, it is usually not automatically contained in every policy and the coverage provided varies widely from policy to policy. Every business owner will have to review their individual policy to determine what may be covered.
Business income policies usually require physical damage to qualify for loss of business income. For example, if a business was to suffer a fire loss that business could also make a claim for loss of income as the property is being rebuilt. The issue with COVID-19 is that a virus in and of itself does not typically constitute physical damage, although there is some case law supporting the notion that “harmful substances” at or on a property can constitute “property damage.” See Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am., 2014 WL 6675934 (D.N.J. Nov. 25, 2014). This may not be helpful for businesses that are closed simply for the threat of spreading a virus, and don’t necessarily have the virus present and a contamination issue. In addition, many insurance policies often include specific exclusions for viruses and other biological agents from standard coverage. So, even if the coronavirus was to constitute physical damage, recovery could still be precluded by the policy itself.
While it may seem as though the possibility of recovery is slim; all may not be lost. Some states are proposing legislation to assist businesses seeking coverage. New Jersey, for instance, has proposed legislation to override the “virus” exclusion contained in many policies and we understand that Pennsylvania’s legislature may look at similar changes.
We are recommending that all business owners review their insurance policies carefully to determine if they have coverage. It will also be important to know the answer to that question if you are going to seek any state or federal grants or emergency aid because most applications for state and federal relief programs, including the SBA Emergency Loan Program, will ask if you have coverage.
We are happy to assist businesses with reviewing and analyzing what their policies cover. As circumstances continue to evolve regarding COVID-19, we will continue to monitor this issue and will provide updates as they are available.
Please send an email to [email protected] and we will direct your question to the appropriate attorney.
– MacElree Harvey COVID-19 Response Team
