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March 17, 2020
Business Law Coronavirus Client Alert – Insurance Coverage

Late yesterday afternoon, Governor Lamont’s Executive Order 7D became available, and clarified his earlier announcement that prohibited the gathering of 50 or more people, limited the operation of restaurants, bars and private clubs, and closed OTB facilities as well as gyms, sports, fitness and recreational facilities, and movie theaters “until further notice.”  E.O.7D made these changes effective through April 30, 2020, unless earlier modified, extended or terminated by the Governor.

E.O. 7D specifically prohibits religious, spiritual, and worship gatherings of 50 or more people, whereas a prior executive order, E.O. 7, specifically excluded spiritual gatherings and worship services from the prohibition on gatherings of 250 people or more.

All Connecticut businesses are impacted by COVID-19, some to a greater or lesser extent. Businesses will necessarily be exploring whatever avenues may be available to them to recover from losses incurred. Companies are reviewing their insurance coverage, particularly the business interruption and related coverages, for possible recovery of losses due to the pandemic.

Unfortunately, most business interruption insurance, which is often part of a company’s overall commercial property insurance, requires physical damage to insured property to trigger the coverage. Businesses should also look to their policies to see if they include coverage for losses arising out of the closure of the business by civil authority – in this case, by Executive Order of our Governor. Again, this coverage is most often applicable where there is physical damage, in this case, to neighboring or nearby property resulting in governmental action restricting an insured’s access to its own property. While there are extremely limited instances where courts have held that there was business interruption coverage by reason of orders of a civil authority without property damage, those rare cases look to the actual language of the policy and the peril insured against.

There is also possible coverage for losses under contingent business interruption insurance. This coverage protects against losses which result from property damage to the property of someone the business depends upon for its business. This would typically be a supplier or a customer of the business. Again, however, most insurance coverage is tied to damage to property, and not infection or disease. In fact, not only are viruses and epidemics typically not covered as insured perils, they are often expressly excluded.

The insurance industry, through the Insurance Services Office (ISO), monitors emerging issues that affect the insurance industry. ISO has, in response to the pandemic, created two business interruption endorsements specifically related to COVID-19. Each endorsement would provide limited coverage for certain civil orders relating to the coronavirus. Neither endorsement, however, has been filed with any states, and these endorsements have not been added to ISO’s forms portfolio. Individual carriers can consider whether to use either coronavirus related endorsement, and file it with the appropriate regulatory authority if they do. As of today, we are not aware of any insurer willing to adopt the coronavirus based business interruption endorsements while the crisis is ongoing.

The conclusion is that it is not likely that Connecticut businesses will have business interruption coverage due to COVID-19. Certainly, though, every business should review all existing coverage with its professionals, and stay on top of developments in insurance products that may be available in the future in response to COVID-19.

For more information or if you have any specific questions, please contact:

Suzanne M. Scibila | scibilia@halloransage.com | 860.704.6868
Brad N. Malicki | malicki@halloransage.com | 860.704.6856

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Suzanne M. Scibilia
Brad N. Malicki
Insurance
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