Many of our customers have been asking if there is insurance coverage for any loss of income due to the Corona Virus. While the situation is still fluid and things can change, the short answer is that coverage is “questionable, but possible” and our advice to clients at this point is to keep as many records and documentation as possible on each loss or potential loss so the option of making a claim stays open as we learn more about this. We will advocate on behalf of our clients for the most favorable response available under the applicable policies.
With every claim, policy wording and specific triggers driving losses will determine the applicability of coverage. That said, this is a unique situation and losses are so significant that future litigation will likely challenge many policy defenses presented by insurers.
Any intent to ultimately pursue insurers will require the documentation/support of all claim details and losses. Tracking and reconciling this information while losses are being sustained is critical, as gathering that necessary information at a later time can be become far more difficult.
• This memo is written specific to real estate investors seeking relief of loss on income as a first party claim. This does not look at general liability coverage availability.
• It is written in general terms and each policy should be reviewed for specific coverage language or exclusions. It is NOT to be used as a conclusive coverage opinion or legal advice.
How coverage could be applied
Generally speaking, for a policy to respond to business interruption coverage, the following two conditions need to be met:
1. The property has to sustain direct damage (fire, flood, lighting etc)
Business Interruption coverage is normally triggered as a result of “direct physical loss” or damage to the insured location. An argument can be made that the presence of a human to human contagious disease/virus reaches the threshold of “direct physical damage of the type insured against”. Courts in some cases have determined that contamination and other incidents that render property uninhabitable or otherwise unfit for its intended use constitutes a “physical loss” enough to trigger business interruption coverage. Specifically, after the SARS outbreak in 2013, Mandarin Oriental Hotels received $16 million from its insurers under business interruption coverage.
2. The peril itself must be insured or not specifically excluded.
Most policies may specifically exclude damage due to virus/bacteria or Microorganisms. Look for specific exclusions on the policy.
Civil authority coverage is found in many policies and pays for business interruption is caused by order of civil authority that prohibits access to the “premises”. The challenge with this is that most policies require that the “That order must result from a civil authority’s response to direct physical loss of or damage to property located within a certain distance from the insured “premises”. Again, the “direct” physical damage is a big question.
An additional point to consider is that for real estate investors, specifically apartment owners, the government may not allow the tenants to work or leave the premises but they will not prohibit access to the building nor will they stop the landlord from continuing to operate or charge rent to the tenants. This takes away the directness of any loss.
Ingress/Egress coverage generally kicks in when ingress or egress by your suppliers, customers, or employees to the “premises” is physically obstructed due to direct physical loss or damage. Again, this is questionable whether a virus constitutes a physical obstruction.