One of the several painful effects of the COVID-19 pandemic is that countless businesses have suffered and even been forced to shutter. This is the case despite the fact that many of them have insurance policies that not only protect from damage to property, but also typically cover lost profits from business interruption. Nevertheless, companies large and small are not reaping the benefits of their insurance policies because carriers are denying business interruption claims without proper investigation.
Of note, the vast majority of policies that provide coverage for business interruption requires physical injury to the insured’s structure. Moreover, many of them include “virus” or “microbial’ exclusions that could form the basis of a coverage denial. Still, with only a nod to such limiting policy language, insurers are denying business interruption claims without the diligence (read: investigation) required by law.
More and more, those on the receiving end of coverage denials are fighting back. Recently in California, a suit was filed by a preschool called the Baldwin Academy after its insurance company denied its business interruption claim, allegedly without performing any investigation. The complaint for breach of contract and breach of the implied covenant of good faith and fair dealing alleges that the insurer asserted it was not obligated to investigate further and refused to do so, even though the policy in question included a communicable disease endorsement.
It would appear that the insurance company’s purported assertion that it was not required to thoroughly investigate is tenuous, at best. In California, as in most states, carriers are obligated to investigate claims prior to rendering decisions on coverage. In fact, California Insurance Commissioner Ricardo Lara has sent out a mandate to insurers doing business in the state making clear that all COVID-19 claims must be fully investigated prior to the rendering of a coverage decision. To put a fine point on it, Commissioner Lara’s mandate states that all insurers must pursue a “thorough, fair, and objective investigation.”
All that being said, if your company is having difficulty with a business interruption claim arising from COVID-19 or any other pandemic-related matter, the attorneys in Michelman & Robinson’s COVID-19 Practice Group can certainly help.
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.