Will Insurance Cover COVID-Related Business Losses?
The Insider spoke with Allen Wolff, a shareholder in the law firm Anderson Kill.
Q: Landlords are bracing for a drop in rental income as more and more tenants who lose their jobs stop paying rent. Would standard insurance that most landlords carry cover such a loss—that is, some kind of business interruption insurance? And if so, would they find that coverage in their property insurance policy or elsewhere? How is that typically covered?
Wolff: Landlords might have coverage under a property insurance policy, though they might also have a separate, standalone business interruption policy. Under a property policy, you usually need property damage or loss to trigger coverage under the policy before you’ll be able to access that business interruption coverage.
Q: Is an event like a pandemic considered property damage? Or would a pandemic be specifically excluded from such policies?
Wolff: We have already seen statements disclaiming the likelihood of any coverage, saying that these policies, as part of a property insurance policy, require physical damage to property before the business would be covered. But I would argue that property damage is anything that constitutes harm to your property that impacts its ability to function as a property, or to receive revenue that it typically earns. The presence of a virus may not be visible, but the property must be “repaired”—that is, cleaned and operated at greater expense to keep it functional. And sick or laid off tenants who can’t pay the rent certainly interrupt your cash flow and hurt your business.
Q: How much of a revenue loss would one typically have to suffer before filing a claim? Is it a good idea to file a claim as soon as possible?
Wolff: Typically the insurance company won't pick up the loss until it exceeds the deductible of the policy or self-insured retention of the policy, but you can give notice as soon as you have suffered what you believe to be property damage.
Some people might be reluctant to file, fearing that that filing a claim only ensures that your premiums will go up next year. But after this crisis, guess what? Everyone's premiums are going to go up! And failing to give notice in a timely manner may prevent you from accessing that coverage in the future. So go ahead and give notice to the insurance company saying, I believe I've suffered a loss at my property due to COVID-19 and/or orders affecting non-essential businesses and hereby give notice that I will seek to be made whole for any and all covered losses.
Read your policy—it will tell you what the notice requirements are. But generally speaking, once you have suffered what you believe to be covered property damage, you can give notice to the insurance company and say, I want coverage for any and all present and ensuing losses.
If your policy says you have to give notice within X number of days of a defined event, then the actual date of loss, the date that the injury is physically suffered, may be difficult to pinpoint for each landlord, because COVID-19 is a moving event. With regard to any commercial tenants you have in your building, the date of loss would be the day there was a governmental order to shut things down. With regard to residential tenants, the date of loss may be the first rent due date after local government orders were issued. But I would advise not waiting more than a month to give notice.