Coronavirus Business Interruption

Written by Jean Pierre Nogues and Daniel M. Hayes

Escalating health concerns, governmental restrictions, empty shelves at retailers, supply chain disruptions, and wild gyrations in the financial markets.  The COVID-19 virus and steps taken to reduce its spread are impacting more businesses in more ways each day.

In order to put yourself in the best position to weather this storm and recover as quickly as possible, it is vital that you consider and fully understand the defenses you or your business partners may have under your contracts, and whether you have any insurance coverage for your COVID-19 losses.

Many contracts contain force majeure (or Act of God) clauses which can relieve parties of their obligations in the event of natural disasters, epidemics, terrorism, government acts, labor disputes, and other sorts of business interruption.  Even in the absence of an express clause, businesses experiencing COVID-19 disruption must consider whether the applicable statutory or common law provides a force majeure excuse to performance to one side or the other under their particular circumstances.  (See, for example, California Civil Code § 1511, which excuses performance that is “prevented or delayed by an irresistible, superhuman cause”.)

Your insurance policies may provide business interruption or other coverage for some of your losses.  Whether they do or do not turns on the nature of the loss, what causes of loss are covered and what exclusions exist in your policies.  Some policies expressly exclude virus-caused losses,[1] while others expressly cover business interruption caused by communicable diseases.  But absent such explicit terms, coverage is not always clear.  For example, some business interruption insurance is triggered only when your business premises suffer physical damage; other, broader policies are not so limited, and may provide coverage where businesses or supply chains are disrupted by natural disasters, government orders or in other circumstances outside of your control.  And even where business interruption coverage is tied to physical loss or damage, some courts have held that contamination may be sufficient to trigger coverage, absent an applicable exclusion.

Your own direct loss of income is not the only COVID-19 risk that your policies may cover.  For example, what happens if an employee or a customer makes a claim against you for an injury relating to the COVID-19 outbreak?  Would you have coverage?

We can help you navigate these issues.  If you would like us to review your critical contracts or insurance policies to evaluate how you might avoid or mitigate the commercial losses caused by the COVID-19 pandemic, please contact us.

 

[1] At the time of this alert, at least one legislature (New Jersey) is considering a bill that would force business interruption insurers to cover COVID-19 related losses where their policies contain a broad virus exclusion. See New Jersey Bill A-3844.

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