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Massachusetts Proposes Legislation to Require Insurers to Pay Business Interruption and Loss of Use Losses Arising from the COVID-19 Virus

Maximizing Insurance Recovery for Losses from the Coronavirus/COVID-19 Pandemic

The coronavirus pandemic has had a significant financial impact on businesses in each industry that is likely to continue for an uncertain period of time.  Many businesses have closed or limited their operations due to the virus, including restricted operations imposed by governmental authorities.  It is also inevitable that there will be securities liability lawsuits filed against companies for losses alleged to have been suffered by a third party due to misleading or inaccurate financial reporting or alleged improper management or decisions made by corporate officers or directors, as well as liability claims against healthcare providers and businesses for negligence or other wrongful acts which allegedly cause bodily injury or property damage to third parties.  Businesses must understand their insurance portfolio to determine whether they are protected by insurance for such claims or losses.  Whether a particular claim is covered under a particular insurance policy depends on the particular facts of a situation and the terms and conditions of the insurance policy.  Some insurance policies that may apply to protect a business from losses include:

Business Interruption Insurance:  Commercial policies generally incude business interruption coverage which indemnifies a business for losses sustained due to an interruption in business operations.  Coverage under such policies may include civil authority coverage, which may protect a business in the event of an interruption in business operations caused by government orders which impair or prohibit access to a company’s property.  Business interruption policies may also provide contingent business interruption coverage, which protects the insured from losses caused by an interruption to business of suppliers or distributors in its supply chain.  Business interruption coverage generally requires that there be physical loss or damage to the insured or supplier’s property,  Additionally, these types of policies may contain exclusions to coverage for viruses. The policies must be reviewed to understand whether there is potential coverage.  Additionally, states may enact legislation concerning business interruption losses.  As an example, the New Jersey legislature introduced legislation on March 16, 2020, Assembly Bill 3844, to force insurers issuing insurance policies in New Jersey that provide coverage for property damage and business interruption to include coverage for business interruption due to the coronavirus pandemic.  Whether any such legislation will become law remains to be seen.

D&O Insurance:  D&O insurance policies protect officers, directors and businesses from liability for wrongful acts, including various breaches of duties, that cause economic loss to a third party.  These types of policies apply to shareholder suits against corporations.  There likely will be numerous shareholder and securities lawsuits filed as a result of the stock market slide due to concerns over the coronavirus and its impact on the economy.  Businesses facing claims for alleged misleading information in financial disclosures or actions by their management or board of directors arising from the coronavirus should look to their D&O policy to determine whether coverage exists.  These types of policies usually require that a claim be filed against the insured during the policy period in order for coverage to be available. 

Event Cancellation Insurance:  Numerous events have been cancelled due to coronavirus fears, impacting hospitality, travel and retail businesses.  Event cancellation insurance policies provide coverage for losses arising from events that are cancelled due to circumstances outside of the insured’s control, including cancellations due to government order.  Coverage may apply for cancellation of an event, as well as for events that started but did not finish and events that continued but not at the level of attendance expected due to the coronavirus.  Coverage may exist for events that are postponed or relocated.  Like other insurance policies, coverage under these types of policies depends on the particular circumstances and the insurance policy’s terms, conditions and exclusions, including the existence of any exclusions for virus-related losses.  

Commercial General Liability and Errors and Omissions Coverage:  Commercial general liability insurance policies protect businesses against losses for claims filed by third parties for bodily injury or property damage caused by an accident, i.e. an unforeseen event by the insured that occurs during the policy period.  Property damage generally includes physical damage to property as well as loss of use of property.  Errors and omissions insurance policies generally provide coverage to professionals for claims alleging negligence in the provision of professional services, including healthcare and convalescent care.  Claims filed by third-parties against a nursing home, hospital or medical professional for coronavirus-related injuries may trigger coverage under these types of policies. 

The coronavirus pandemic has affected global businesses like no other crisis in a long time, resulting in significant losses and potential losses to many businesses.  To determine whether insurance exists for a particular loss sustained by a business or liability claim against a business, it is important to review the insurance policy and discuss its application to the particular loss at issue with an insurance professional.  If coverage potentially exists, it is important to provide notice of claims or potential claims to insurers in accordance with the notice reporting requirements of the policy and comply with all other conditions to coverage in the policy.  Businesses should also maintain records and evidence of any business losses or other damage sustained as a result of the coronavirus.

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