Ohio businesses have experienced devastating COVID-19 financial losses from the COVID-19 pandemic, requiring them to focus on operational, staffing and supply-line issues. Some have been forced to close temporarily — others permanently. Some businesses will be damaged for months or even years into the future.
What many businesses likely have in common is an insurance policy that provides business-interruption and expense coverage. So why have many businesses not yet made a proper business damage claim with their insurance carrier? The reasons vary, but often are based upon a perception or information that is incomplete or even invalid.
First, insurance policies are contracts and the proverbial devil is in the written details. Policies are specifically drafted and written in a way to create economic profit for the insurance company. In the United States, insurance is a trillion-dollar industry. During 2018, the insurance industry had $1.7 trillion in cash and invested assets. That same year, net profit for the property-and-casualty sector was $60 billion.
Policy details have been very profitable. If language is clear, courts enforce the contract. Policies set forth what conditions must be met, what financial limits exist and what exclusions apply.
When COVID-19 first struck, insurance companies rushed to the media, politicians and insureds with messaging that a) there was no coverage for this risk since there was no physical damage to the insured's property to trigger coverage and b) specific virus exclusions voided claims. They wrote letters to newspapers and legislators and created news stories in the media in a clear attempt to cloak themselves from anticipated claims.
When businesses contacted their agents to discuss coverage for losses, they were also often told there was no coverage. This intentional dissuasion caused many businesses to believe there are no valid business-loss insurance claims due to COVID-19.
What the insurance industry failed to convey are three very important things.
First, in almost every policy, an immediate and timely official claim to the insurance company is required. Some policies are also "claims made" as opposed to "claims occurred" and require a claim to be made during the typical policy period dates, which are often only one year. So, if a claims-made policy is expiring soon, a claim must be made immediately.
Second, the claim should be submitted for all coverage for damage, loss and expense available under the policy and not be narrowly limited to a specific policy provision.
Third, and possibly most importantly, if the coverage terms or exclusion terms relied upon in the insurer's written denial of a claim are not clearly defined in the policy and are subject to more than one reasonable interpretation, in Ohio the interpretation that favors the damaged business prevails. Whether a virus is considered "pollution," whether it occurred "suddenly and accidentally," and whether it caused "direct physical loss of or damage to property" are examples of language that is open to interpretation and scrutiny.
Many insured businesses incorrectly believe they have plenty of time before they need to make a claim. They are unaware that they may be failing to comply with timely notice and claims-made requirements. They also fail to realize that even though the denial might appear reasonable, it may not be deemed so in a later determination by a court of law.
Businesses also have been advised there is no evidence of "direct physical property damage" or "direct physical loss of property" under the policy requirements. Many denials are based upon this language, but it is an evolving area of major dispute between businesses and their insurance companies. However, Ohio has case law under which contaminants on or within a property that cause loss of its physical use create coverage for a business-loss claim.
Although many lawsuits have been recently filed across the country, there currently exists no national or local case law applying policy language to COVID-19 business losses.
What should a prudent business do at this time? First, immediately obtain your complete insurance policy and determine what time limits exist and comply with them. Second, determine what contractual statute of limitation exists in the policy under which a lawsuit must be filed in court. Third, determine what past, present and future damages exist and the causes of each damage. Fourth, determine what coverages potentially apply under the policy, the limits for each coverage and the requirements for each. Finally, determine what exclusions within the policy may apply.
This is a very complex task, which will often require the skill and involvement of an attorney or insurance professional experienced in reading insurance policies and assessing coverage.
Although a valid claim may not clearly exist for a business, as case law and legislation involving COVID- 19 damage claims progress, that business is likely better off making a claim now in order to preserve its currently undetermined rights.
Patno is a principal attorney at Cleveland-based McCarthy, Lebit, Crystal & Liffman.
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