When disaster strikes, we first worry about health and safety. Then concerns of financial loss and damage come to mind.
Many commercial insurance policies contain clauses that protect a business in the event of a disaster — including a biological crisis, such as the coronavirus, which has led to governmental intervention, shuttering companies across America. Typically, these policies provide coverage on an “all risk” basis. That means all risks of loss and damage are covered unless explicitly, expressly and unambiguously excluded.
For example, expenses incurred to decontaminate and protect your premises should be covered. Losses from the interruption of your business due to government-mandated closures in this viral pandemic may be covered. However, some insurance companies are instructing their claims adjusters to use obscure contract interpretations and deny certain business interruption claims, which are indeed covered.
Readers who have business interruption insurance need to know how to protect themselves, and how to respond to a possible denial of coverage by a claims adjuster.
If this happens to you, here are some insights into business interruption insurance coverage and claims from two attorneys specializing in insurance bad faith, Chicago attorney Michael Childress, and Brian S. Kabateck from Los Angeles. They have a combined total of 70 years of experience handling insurance bad faith cases.
First: Get a Full Copy of Your Insurance Policy
Kabateck: It is stunning how many people do not have copies of their insurance policy. They may have the declarations sheet but not the body of the policy. You need both in order to evaluate whether there is coverage. The declaration sheet often does not identify additional coverages, optional coverages or extensions of coverage that reside in the body of the policy.
Oftentimes you will need to ask your broker for that policy. You may hear, “Why do you want it?” You simply say that you want to know the kinds of coverages you have in the event of a claim.
Childress: Well before a loss you want to have your full policy.
Next: Read Every Single Word
Kabateck: Some policy forms exclude coverage for losses due to viruses. ISO (The Insurance Services Organization) has a form used by many insurance companies with an endorsement at the back of the policy that specifically excludes loss for viruses and bacteria. If your policy has that, you are out of luck.
However, under the standard ISO form there may be coverage, including contamination or the impact of governmental authority. With that ISO form, consider yourself lucky! To complicate matters even further, many insurance companies have their own policy forms that do not follow ISO, and so the devil is in the details.
You’ve got to read the policy. You need to know what is covered and what is not.
The Governor Shut Down My Business! What Must I Do Now?
Kabateck: There are two roads to finding coverage under an insurance policy. One is direct physical loss and damage, such as a tree falling on your roof. But damage does not have to be visible. It can be an odor or microscopic, such as fungal spores and viruses. If you have someone with the virus in your facility, then you probably have damage, and as just mentioned, will need to take steps to eliminate it from your business premises.
The other road to finding coverage is being shut down by the government or local municipality. Most of these shutdown orders contain language that triggers coverage, by explaining that the action taken is to prevent spread of the virus, i.e. biological damage.
One of My Workers Is Sick: Now What?
Childress: Consider decontaminating your facility if any of your employees come down with the virus. You may need to hire a company that specializes in this type of remediation. It is important to make a timeline — a log — of when you first became aware of it, having someone experienced with business interruption claims interview employees.
If possible, determine the source of contamination and how long it might be there on your business premises. If you have this type of an impact on your facility, your chances of coverage for this expense is much higher.
What Should I Do Right Away to Help Recoup Losses?
Kabateck: Before you so much as speak with your insurance company, have someone experienced with commercial claims read the policy so that you are clear on what coverages you actually have.
After that, set up a separate account for your extra expenses due to the virus losses, for example, canceled bookings and lost profits. Other losses include extra expenses that you are incurring to help your business survive. For example, if customers can’t dine in your restaurant, then you will incur the added expense of outfitting your business for delivery and carry-out.
When Speaking with a Claims Adjuster - Follow These Steps
From watching television police shows, we all know about the Miranda warnings or “What you say can and will be used against you in court.” Both attorneys caution that the same applies when speaking with a claims adjuster. They list these steps to follow:
- Before you present your claim — before your first conversation with the adjuster — schedule an appointment with an attorney who handles business interruption claims to evaluate your policy so that you will know what is covered and what is excluded. You do not want to make a claim for things that are not covered, as this harms your credibility.
- Keep a log of all of your conversations with the adjuster.
- If the adjuster tells you, “We are denying the claim,” it is critical to reply, “Please put that in writing,” as this triggers the statute of limitations — the time limit — for a possible lawsuit against the carrier.
- Business interruption claims are complicated. There are multiple avenues to finding coverage that benefit from a consultation with an attorney who handles these types of insurance claims. You may not need to retain the attorney, but given the stress you will be under, to level the playing field, time spent discussing your rights with a lawyer is an important step to take.
Finally, Understand That Your Agent is Not Required to Offer You Potentially Needed Coverage
Kabateck: Most people are completely unaware of the fact that an insurance agent only owes you a duty to obtain the type of insurance you request. Your agent is like a pizza order taker; if you don’t say that you want pepperoni, it will not be offered.
Childress: I call it the Don’t Ask, Don’t Tell Policy. If you don’t ask your insurance agent for specific types of policy coverage, they have no obligation of suggesting it to you. Many insurance agents are motivated to not offer certain types of coverage, to keep what is called their loss ratios down.
They want to keep losses down so the ratio of losses — claims that are paid — to premiums received from policyholders is not high, keeping the insurance carrier happy.
For example, one area where a claim could cost the company dearly is with “business crime insurance,” which is not generally part of many commercial insurance policies, or at very low limits of coverage.
This covers crime-related loses, such as theft or embezzlement. But a business owner can ask for it, in varying amounts of coverage. Unless the business owner specifically asks for business crime insurance to be added to their commercial policy, it will likely not be suggested.
Your insurance broker is not the person to ask if you have the coverage that your business needs. Many are just salespeople and do not understand what it is they are selling. I know that sounds strange, but it is true. It is always best to have a lawyer who is experienced with commercial claims help you determine the coverage your business needs.
After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, "You and the Law." Through his column he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."
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