The ongoing COVID-19 crisis has dealt a blow to businesses across New Hanover County. From state-mandated closures of non-essential businesses to stay at home orders imposed on citizens, our coastal community has undergone a radical change that has had a drastic impact on local businesses.

Some of these affected businesses may have business interruption insurance coverage. If so, does that mean losses related to COVID-19 closures will be covered? While the answer depends on the terms of the policy, business interruption insurance does not typically cover health pandemics like the novel coronavirus.

In this blog post, we discuss the limitations of business interruption insurance coverage when it comes to COVID-19 and how our Wilmington business law attorneys can help your business navigate this crisis.

What is typically covered under business interruption insurance?

Most business interruption insurance typically covers losses resulting from physical loss or property damage that prevents a business from operating. Coverage is triggered by something that causes physical damage to a business, such as a fire or a hurricane. Although it has caused unprecedented damage, the COVID-19 pandemic is unlikely to cause physical damage to a business and, therefore, damages resulting from the virus are unlikely to be covered under business interruption insurance policies.

Can insurance companies deny business interruption claims related to COVID-19?

The short answer is yes, insurance companies can deny business interruption claims related to COVID-19 – and unfortunately, most will.

While there is legislation underway in several states that  pushes for laws preventing insurance companies from denying COVID-19-related business interruption claims, there is nothing in the current regulations to prevent an insurer from denying your claim. It all comes down to what is set forth in your insurance policy.

Most insurers will take the position that COVID-19-related claims are not covered under their business interruption policies. As no physical damage has occurred due to the virus, it is unlikely an insurance company will reimburse a business under their policy. While some policies will be silent on damages resulting from a virus or viral contamination, others will expressly exclude coverage for damages related to a virus.

If your policy contains a specific “virus exclusion” clause, stating that there will be no coverage for a loss caused by or resulting from a virus, the insurance company will likely deny your claim. However, there is still a chance that a court could determine that the policy language was ambiguous and therefore unenforceable. Similarly, if your policy contains a specific “pandemic exclusion” clause, your insurer will likely deny your claim. While this type of clause tends to be more favorable to the insurer, there is a chance a court would view it as too broad and unenforceable.

As these examples show, how your claim is interpreted will all depend on the wording of the policy itself, so it is essential that you review the exact language of the policy with a business law attorney to determine whether viral contamination or a pandemic is specifically covered, excluded, or not mentioned.

What should businesses do if their business interruption claim is denied?

If your business interruption claim is denied, either because the policy required there to be physical damage, there was a specific viral contamination exclusion in your policy, or any number of reasons, it is not the end of the road. After your claim is denied, contact a business lawyer to determine the best next steps, which usually include an appeal of the denial and, if necessary, an insurance dispute lawsuit.

Insurance adjusters are quick to deny claims, assuming that business owners will give up and not pursue additional remedies. However, some insurance companies may be wrongfully denying claims resulting from COVID-19 losses. Again, it is important to review your exact policy and to reach out to an experienced Wilmington business law attorney to discuss the next steps, but do not be discouraged if your initial claim is denied. 

Here are a few steps you can take if your claim has been denied:

1. Prepare an appeal.

You or your attorney should review the notice of denial and determine why coverage was refused. Coverage can be denied for any number of reasons, including that the claim was not timely filed, relevant information was omitted from the claim, or the policy does not cover damages resulting from a virus such as COVID-19. An appeal letter should include arguments for coverage, additional evidence or arguments in your favor, and specific references to your business interruption insurance policy.  

The insurance company can decide to reverse the denial of coverage or affirm its original decision. If your appeal is denied, the next step may be to file a lawsuit against the insurance company for denial of the COVID-19 claim. 

2. Sue the insurance company in civil court.

Insurance companies can be sued for, among other things, refusing to pay a claim where liability is reasonably clear or denying a claim with little or no explanation as to why. If your claim was denied, you can sue your insurance company for a breach of contract and, in certain cases, under various other state laws or statutes dealing directly with the insurance industry. A Wilmington business law attorney can not only prepare your case for potential litigation but can also negotiate with the insurance company to agree to a settlement in your favor.

How can a business law attorney help in an insurance dispute?

This is a confusing time for many businesses in New Hanover County. If you need further assistance understanding your business’s insurance policy or help with navigating the next steps after a claim denial, our experienced Wilmington business law attorneys are here to help. We provide full life cycle business planning, and help small businesses navigate the many challenges that they encounter. Contact us today to learn more.