So, your business has shut down because it does not fall into one of the “essential” categories described by the State of Washington as it relates to the COVID-19 outbreak.  Your company has business interruption insurance but your broker has told you that it will not cover your lost business income.  What do you do? 

Step 1:  Locate your property insurance policy.  Policies with “Business Interruption” and “Civil Authority” coverage are generally based upon forms created by the Insurance Services Office (“ISO”).  Those forms vary in their terms and may be modified by endorsements.  Each policy is a contract with the carrier and will be the roadmap to coverage.  If you do not have a copy of your policy, you can request it from your broker.  Be sure to ask for all declaration pages and endorsements.  Certified copies of policies are best, but they can take time to acquire, so an initial request for the policy documents followed by a request for a certified copy is the prudent course. 

Step 2:  Draft a notification letter and submit it to the insurance carrier.  This is called “tendering a claim.”  Even if your broker says that your loss is not covered, you should tender the claim.  The notification does not need to be overly specific or provide all of the facts in support of the claim.  It merely needs to put the carrier on notice that you have a loss that should be covered. 

Step 3:  Compile documentation for the loss.  This includes both the loss income as well as any evidence that the novel coronavirus was within your facility, if that is the case.  If you experience a loss due to damage to a supplier to the extent that you were unable to manufacture a product due to lack of supplies, track that as well as it may be covered under “Contingent Business Interruption” coverage.  Because each policy is a bit different, different types of losses may be covered from policy to policy. 

Step 4:  Be prepared for a denial letter from the carrier.  That denial letter is not the end of the road.  The denial will be based upon the carrier’s interpretation of the policy terms and likely consist of a list of reasons the denial is based upon.  Sometimes those reasons are valid, other times they are not.  An insurance coverage determination will involve a fact specific inquiry in the context of your policy, statutes, regulations, and case law interpretation.  It is important to understand which grounds are worth a responsive letter to the carrier – carriers are not always correct out of the gate.  

Step 5:  Draft a written response to the grounds for the denial.  For example, a denial may be based upon the carrier’s argument that the facility did not sustain “physical damage” because it did not suffer a “structural” loss.  There are cases from other jurisdictions supporting the position that the existence of the virus in the facility constitutes “physical damage.”  Also, “Civil Authority” coverage is sometimes based upon a government action taken in response to a dangerous physical condition, which, one would presume, includes the novel coronavirus. 

Step 6:  Wait.  This is a constantly evolving area, with changes occurring on a daily basis.  As of this writing, lawmakers in five states have drafted legislation to compel insurers to provide coverage under business interruption policies, some of which would retroactively eliminate virus or pandemic exclusions.  It is unknown at this time whether Washington will follow suit.  On March 18th, eighteen members of Congress sent a letter to four property/casualty insurance industry groups, asking that they pay all business interruption claims, even when policies exclude the coverage.  Even President Trump has weighed in, stating at a recent press conference, “We can’t let that happen” in the context of carriers not paying out on business interruption insurance.  There have been a number of high profile lawsuits filed, with more being filed every day.  Even if the carrier is correct (and we are not saying that they are), that could all change. 

In the shifting sands of business interruption coverage associated with COVID-19, even a denial letter may have value, depending upon the outcome of potential legislation and legal wrangling.  Moreover, insurance carriers in Washington are subject to bad faith claims for improper claims handling even for claims that are not covered.  An ignored tender could be as good as gold in Washington.  In short, persistence can pay off and, like other aspects of the COVID-19 pandemic, the outcome is hard to predict.  This is one of those “you can’t win if you don’t play” situations, so, if you take nothing else away from this piece it should be, don’t waive your rights to coverage and TENDER A CLAIM UNDER YOUR BUSINESS INTERRUPTION/CIVIL AUTHORITY INSURANCE even if you’re unsure if it is covered. 

Please contact Holly Stafford at Chmelik Sitkin & Davis P.S. if you have questions about your business interruption insurance.