Samuel A. Blaustein, Partner

May 5, 2020

Due to the COVID-19 crisis, New York State Courts are not currently accepting new filings of non-essential civil cases.  Emergency regulations tolling the time to file lawsuits are in place.  However, for policyholders to be certain to protect their rights, it is important to provide notice to insurers and to timely file business interruption claims. Thus, many insureds are seeking to understand whether their insurance policies cover losses attributable to COVID-19.

Insurance is regulated at the state level (as opposed to federal). Business interruption insurance in New York pertains to coverage “due to damage or destruction of a property by a peril insured against.” N.Y. Ins. Law § 5401(d)(4). Business interruption coverage is designed to indemnify against losses and provide to the insured the profits that would have been earned absent the interruption.

Insurers generally assert that, absent physical harm to the businesses’ property, business interruption coverage does not apply.  However, certain provisions, such as act of civil authority, supply chain failure and so on, may provide coverage even where no physical harm is present.  With respect to COVID-19, the issue of whether the virus renders a property unusable, or the subsequent government mandated closures constitute business interruption or trigger extra expense coverage has not been determined.  Several states, including New York, have solicited information from insurers and introduced legislation to require insurers to extend business interruption coverage to COVID-19 claims.  See Bill A. 10226 (March 27, 2020).

Of note, the legality or enforceability of exclusions for biological and viral agents has not been litigated.  Claims were very recently filed in New York federal court by Thor Equities against its insurer, Factory Mutual. Claims have also been filed in other state courts, including by famed chef Thomas Keller in California. To the extent a policy is ambiguous, the ambiguity generally favors the policyholder. Lawyers around the country will be following these cases closely.

So, is your business covered by business interruption or other relevant insurance? The answer will depend on the policy language, the specific facts of your claim and legal development.

The following ten tips are designed to help insureds determine (1) if they have a claim and (2) if so, the appropriate steps to take:  

  1. Contact your insurance broker to discuss (a) whether your policies provide business interruption or extra expense coverage and whether other provisions (i.e., civil authority) or specialized coverages (i.e., perishable goods) apply; (b) deductibles as well as other relevant policy considerations; and (c) the claims process including the time to file a claim;
  2. Put your insurance carrier on written notice as required by your policy;
  3. Mitigate damages by continuing business operations to the extent possible (Mitigation does not generally harm an insured’s position and failure to mitigate may entitle the insurer to a “set off” or other defense. An example of mitigation is a “sit-down” restaurant converting to pick-up and delivery only operations.);
  4. Aggregate “books and records” concerning anticipated losses based upon historical projections is an excelled way to put your employees to work during the COVID-19 crisis (insurance policies often require access to, but do not adequately define, “books and records”);
  5. Institute a litigation hold to preserve any documents pertaining to the claim, including correspondence with the insurer;
  6. Prepare a claim with professional input including your attorneys and accountants (the insurer will likely have counsel and, where appropriate, accountants specializing in business losses and the insured should participate in this process and retain their own specialists to ensure proper treatment of their claim);
  7. Participate actively in claim management (Insurance policies may be unclear and even omit what documents and information the insurer will consider in evaluating a claim. By inquiring what documents and information are sought, the insured can avoid later claims that adequate documentation was not forthcoming and potentially resolve the claim without litigation.);
  8. File any lawsuit timely (breach of contract cases have a six year statute of limitations in New York but the insurance policy documents may impose a shorter time);
  9. Continue to update claim documents throughout the process (even if the insured prevails on liability, damages will need to be established separately); and
  10. Assess whether consequential losses, special or other damages are available.

These ten tips provide general guidelines. An assessment of the relevant policy is integral towards determining whether an insured has a viable claim. Dunnington attorneys are available to assisting with insurance policy reviews, the claims process and, if necessary, litigation. Please contact us for help.

Required Disclaimer: This alert is provided for informational purposes and does not constitute, and should not be considered legal advice. Specific facts and circumstances will differ. Neither the transmission nor the receipt of this information shall create an attorney-client relationship between the transmitter and the recipient. You should not take, or refrain from taking, any action based upon information contained in this alert without consulting legal counsel of your own choosing. Under applicable professional rules of conduct, this informational publication may be considered attorney advertising.