Business interruption insurance, sometimes referred to as business income insurance, is a type of insurance that protects the loss of income a business may suffer as a result of a disaster. This is different than property insurance, which protects physical damage to the premises where the business is located. Business interruption insurance is usually a supplemental form of insurance that will protect the businesses’ profits that would have been earned. Normally, the amounts of coverage are capped by way of an amount or timeframe of coverage, or sometimes both.
Depending on the language contained within the policy, business interruption insurance can cover not only lost profits, but can also cover new or additional fixed costs for having to temporarily or permanently relocate, new equipment and related training, and in some instances additional expenses related to the interruption of business associated with third party suppliers or manufacturers whose operations have also been suspended.
A review of the policy is the first step in determining the extent of coverage that your business may have. If you have coverage, or are unsure based upon the policy the extent of the coverage, you must file a claim in order to avoid the waiver of coverage. If your business and its operation has resulted in lost profits due to the coronavirus pandemic, your business has a claim. When filing the claim it is important to note whether the lost profits are continuing due to complete closure, partial operation, etc. However, the manner in which the claim is submitted, specifically the cause for the business interruption, should be carefully reviewed prior to submission to potentially avoid a denial of claim based upon other language contained within the policy.
Insurance companies aren’t about to cover the claim without reviewing the policy language in order to attempt to find a basis for a denial. Given the surge of claims that are to be expected businesses should expect their insurance carriers to try to find reasons under the policy to deny the claims. Consulting with an attorney who can review the policy, the basis for the claim, and the size of the claim, can improve the viability of the claim and reduce the chances of a denial.
If there is any ambiguity in the policy regarding whether or not there is coverage, the insurance carrier will likely seek a basis to deny the coverage, forcing the business to file a lawsuit to compel coverage. This type of lawsuit is called a declaratory judgment action, and seeks judicial review of the policy terms and the facts underlying the claim to determine whether or not coverage is provided. New Jersey and New York have a long history of deciding ambiguous terms in favor of the insured in order to provide coverage.
Despite the judicial policy of interpreting policy language in a manner that is favorable to finding coverage lawsuits are often lost based upon very subtle exclusions contained within the policy language. Though the courts should try to find coverage under the policy language if possible, they are restrained from interpreting the policy in a manner that provides coverage where there is none. For example, as a result of the September 11 attacks at the World Trade Center, hundreds of lawsuits were filed seeking to compel insurance companies to cover lost profits as a result of the destruction of the towers. In all declaratory judgment actions the policy holder bears the burden of proving that there is coverage under the policy. Courts are required to give plain meaning to the policy language in order to determine coverage.
In Arthur Anderson, LLP v. Federal Insurance, a New Jersey appellate court affirmed the lower court’s denial of coverage based upon the policy’s language which required the claimant to have an insurable interest in property which was damaged and resulted in the lost profits. Arthur Anderson claimed that, as a result of the economic downturn caused by the attack, despite the fact that it was not a tenant in the towers, it had lost approximately $250 million dollars. Coverage was denied based upon the insurance company’s position that it had not suffered any property damage associated with the attack. The lower court denied the declaratory judgment action and declined to cover the claim as it was not subjected to any loss associated with the attack other than purely economic damages.
Due to the coronavirus, the New Jersey legislature is currently considering bill A-3844, which would require insurance companies to provide coverage for lost profits as a result of the closure of the business due to the governor’s recently promulgated executive orders. The reason behind such a bill should be obvious: New Jersey would like to see the private sector assume the risks and assist businesses in getting back on their feet once the pandemic subsides and avoid decisions like the Arthur Anderson matter. Most policies will have language similar to the Arthur Anderson case, which will require some type of physical loss to be attributable in connection with a lost profits claim. If A-3844 is passed courts will have to reconcile the language of the policies with the statute while still adhering to the core principles of declaratory judgment actions.
Before you file a claim consult with an attorney to determine the basis for the claim and how it should be presented to the insurance company to avoid a denial.
Michael Orozco is an attorney with the law firm of Price, Meese, Shulman & D’Arminio, PC. If you require assistance with a claim, or a denial of claim, he can be contacted at (201) 391 3737 or via email at morozco@pricemeese.com.
