Business Income Insurance Claims
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Business Income Insurance Claims
I have been reading several of the posts on social media about the applicability of business income to Coronavirus claims. It is pretty easy to predict how a particular poster is going to fall on the issue with lawyers suggesting there is coverage and insurance agents and carriers suggesting there isn't. Everything I have seen and heard is that carriers have, and will continue to, deny claims of this sort. What we are really discussing then is how these claims will play out in courts as lawsuits follow. As a lawyer and insurance agent I appreciate both perspectives. The stakes are certainly high, as insurance carriers are talking about the size of claims exceeding the insurance industry’s ability to pay, and restaurants and bars facing permanent closure.
Obviously, it comes down to the policy in question, and the interpretation of the policy language in each case. The article attached is a good mix of policy language and legal interpretation, including the specific ISO policy sections at issue in the current French Laundry restaurant suit and the virus/bacteria exclusion found in a number of policies.
What I find interesting, and look forward to seeing play out, is how the courts treat these cases. Contract interpretation comes in many different forms. A court may apply a more classical approach, interpreting only the words of the contract and ignoring the intent of the parties. Alternatively, they may try to dig in and figure out what each party intended. They could take a more objective view (enter the reasonable and prudent man), or take a more progressive approach and figure out what is best for all of us at this point.
An added layer of complexity is the fact that this is an insurance contract. Insurance contracts are often negotiated on terms (the insured pays more premium to remove an endorsement or exclusion), but the language is rarely changed by the insured. Most often, the insured gets the language provided by the carrier. For this reason, I could see many courts siding with the insured. Apply that dynamic to the current situation. Does it really matter what the owner of French Laundry thought his policy covered when he bought it? My guess is he and/or his attorney never read it. Moreover, they never could have contemplated the disruption of the economy on this scale. The insurance industry clearly contemplated it, and tried to exclude it. If you look at the article attached, the filing for the exclusion cited in the article shows they contemplated a claim on some level for this kind of thing. I would be fearful if I was a carrier and I did not include the virus/bacteria exclusion in a policy.
So is there coverage? Clearly, the answer from the carrier is a resounding “NO” but that isn’t where the issue will be decided. Like I said, I have a toe in both waters, and I am pulled in both directions. I think two things are clear: 1) the insurance carriers did not rate their policies with this kind of exposure in mind, and 2) the insureds never anticipated this issue and expected insurance to cover it. Think what you want about insurance carriers, but I find them to be well-intentioned business trying to make money, just like French Laundry. As offended as French Laundry would be to have a court come in and apply a level of financial burden that was never bargained for, the same logic applies to Hartford. Then again, Hartford wrote the contract, and Hartford knew better than anybody what its capacity for loss was.
This is obviously going to take months or years to play out, and a large part of it is going to be how the contract is interpreted. Courts, juries and appellate courts are made up of people. People have feelings. And there is no middle ground here. As soon as a carrier begins to cover it for one, the floodgates open. At the same time, businesses are shuttering and there is no end in sight. For that reason, it is impossible to apply a purely legal analysis to this situation.
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