Invisible causes of physical damage, like carbon monoxide and asbestos, may provide a precedent for coronavirus claims to be covered under business interruption policies, according to a recent Anderson Kill webinar.
“Real courts have decided in real cases that there are instances where you have something – that we argue is analogous to the coronavirus – that has led to business interruption that is covered,” said Daniel J. Healy, partner.
Insurers can be expected to point to the lack of physical loss or damage as a reason to exclude coronavirus claims from business interruption coverage. However, smoke damage from wildfires, carbon monoxide leaks, ammonia leaks and asbestos are a few examples of invisible damages that have triggered business interruption policies.
“Don’t buy into the insurance company denials right out of the gate,” said Daniel J. Healy, partner. “Insurance companies can be expected – at least at the outset – to dig their heels in a bit.”
Business interruption coverage could vary by state. Massachusetts, for example, is considering a bill that would require insurance companies to provide business interruption insurance to policyholders negatively impacted by COVID-19.
“It’s perfectly logical that [the virus exclusion] is out,” said Rhonda D. Orin, managing partner. “A virus is not a condition of a building. Excluding a virus is throwing in a word that just adds an exclusion.”
Mold is a condition of a building because it can conceivably result from the damage to physical property, like a water leak or a flood. However, if a virus could not conceivably result from structural damage to the property then the exclusion inherently doesn’t make sense, said Orin.
This kind of discrepancy will favor the policyholder because they weren’t the ones who wrote ambiguity into the policies, according to Anderson Kill.
“If you have an inherent conflict between a coverage and a policy, and an exclusion and a policy – and the insurance company wrote the policy – the coverage is going to win,” said Orin.
When insurers proposed virus exclusions, they said exclusions covered structural damage only – so viruses could never have been included on the basis that they are not physical damage – but the basis is flawed because policy language uses the word physical instead of structural, said Orin.
“Structural damage is not required,” said Orin. “If physical meant structural, then the word would’ve been structural.”
The pandemic effect on construction
The construction industry may be affected by project delays, extra costs to accelerate work after restrictions are lifted, increased material cost, loss of current and future revenue, and litigation.
Sickened employees or family members may also sue construction companies – potentially covered under worker’s compensation or the employee liability policy – in addition to third-party lawsuits which could occur years after the outbreak, with claims that defects in buildings’ heating, ventilation or air-conditioning systems resulted in illness or injury.
“Claims are going to be so substantial that it’s possible to imagine dedicated COVID-19 dockets like we see in the asbestos context now – perhaps some sort of dedicated alternative dispute process,” said Stephen D. Palley, partner.
“In this particular historical moment, when billions – hundreds of billions, trillions – of dollars are at stake, and you’re thinking about the survival of your business, you have to consider every possible opportunity for recovery. Sometimes that means thinking creatively about the coverage you purchased and what you’re entitled to,” said Palley.