Why Business Interruption Insurance Should Cover Covid-19

Most insurance companies will deny business interruption (BI) claims for covid-19 losses by saying there was no "direct physical loss" to insured property. Expect insurance companies to say "Covid-19 did not physically damage your property, so we're not paying." Are they right?

Understand that insurance law is state law, so your state law matters. Consider what California law says about "direct physical loss."

"Direct physical loss" generally means physical damage to insured property. See Simon Marketing v. Gulf Ins. Co. (2007) 149 CA4th 616, 623. "Direct", used in conjunction with "physical," means without intervening conditions, immediate.

A "direct physical loss" should be a distinct, demonstrable, physical altercation to insured property. See MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co. (2010) 187 CA4th 766, 779. Such a loss should result in an actual change in the property from a satisfactory state to an unsatisfactory state. An external force must have acted upon the property to cause a physical change in the condition of the property. MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co. (2010) 187 CA4th. 776, 780.

Can a business demonstrate the presence of covid-19 on its insured property? If so, argue for coverage by showing a distinct, demonstrable, physical altercation to the property caused by the virus. Covid-19, after all, physically exists in the environment. It's an external force.

Did a business's insured property sustain physical damage because of a lack of power or other utility due to covid-19? If so, argue for coverage by demonstrating that physical damage.

Insurance policies generally don't define what "direct physical loss" means. Know that any ambiguity in a contract (i.e. an insurance policy) is interpreted against the drafter of the contract (i.e. the insurance company). So argue for coverage on the grounds of ambiguity. Know too that courts sometimes construe insurance policies in favor of coverage. Argue for coverage.

Overcoming the "direct physical loss" hurdle is only the beginning, however. Next steps involve covered perils, exclusions, and endorsements. For more info read our earlier blog post: Does Business Interruption Insurance Cover Covid-19?