As a result of the response to COVID-19, many businesses have been closed for several months. Only recently have businesses been able to re-open. Now, while these businesses are grappling with re-establishing their enterprise, they are confronted with protests and civil unrest.
I have previously opined on the potential for business interruption insurance coverage arising from the COVID-19 closures. As businesses re-open they may be closed again or have property damage or theft claims as well. If your home or business has been damaged, destroyed, or otherwise closed due to the recent events, you will want to know what insurance coverage you have for such an event.
Insurance policies provide coverage for covered causes of loss.
There are two ways an insurance policy defines a covered cause of loss. The first is by naming specifically the causes that are covered. The second is by covering all causes except those that are excluded. Policies typically include riot or civil commotion as a covered cause, thereby affording coverage for the loss. So, unless there is an exclusion, you likely have insurance coverage if you sustained direct physical damage or loss to covered property.
The first potential exclusion involves the unique response to COVID-19 and potential vacancy of a building.
If a business has been closed for more than 60 days before the vandalism or theft occurred, then an insurer may look to invoke the vacancy exclusion. In most cases, these terms are not defined in the policy, which should help an insured who is confronted with such an argument. It is noted that the vacancy provision typically applies only to vandalism and theft but not riot and civil commotion, which means that property damage would not be subject to this exclusion. However, because many businesses may have been closed by the response to COVID-19 for more than 60 days before the riots and civil commotion, this is a provision to be mindful of when presenting the claim to the insurer.
As a business owner you may be looking at coverage for business interruption (loss of income) as well.
This coverage also requires direct loss or injury to property. Naturally, if your business was damaged during the protests that should be an easy hurdle to establish. But, if it was subject to shutdowns as a precautionary mechanism then you may be without coverage for business interruption. Either way, however, it is worth investigating. If you do have coverage, then the next challenge will be establishing the value of the loss. Because of COVID-19 many business’s sales/profits have been impacted. This will invariably complicate what is typically a complicated analysis.
Assuming you sustained direct damage or loss of property arising from riot or civil commotion and that this was not vandalism or theft to a vacant building, then there are other exclusions to navigate around. The first is War and Military Action which is defined as including insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against such events. Additionally, policies may exclude the seizure or destruction of property by order of a governmental authority. As the circumstances of the civil unrest evolve, and the government’s response changes as well, these exclusions are potentially at issue and will need to be addressed.
Finally, you may have a “Terrorism” endorsement that may impact your coverage.
Following 9/11 the government enacted the Terrorism Risk Insurance Act, which currently expires on December 31, 2020. Insurers, in response to the TRIA, may have offered certain policy coverages available for certified acts of Terrorism. Whether or not this becomes applicable remains to be seen, but it is one more issue that you will need to consider.
Because of the interplay between all of these policy provisions and the unusual circumstances surrounding COVID-19, you should consult with an experienced insurance coverage attorney is to discuss your coverages and options available to you.
Matthew S. Brown is a partner at Carlile Patchen & Murphy, LLP and the chair of the business litigation group. He is a Certified Specialist in Insurance Coverage Law through the Ohio State Bar Association. If you have specific questions about your insurance coverage for your business, please call Matt directly at (614) 628-0877 or email him at mbrown@cpmlaw.com.
I thought riot and civil unrest were exclusions. Is this new coverage in policies. Since insurance spreads the risk so to speak, does this mean it is likely all our HO policies are going to have huge rate increases to cover these claims?
Thank you for your inquiry. Riot and Civil Commotion are typically included as specified causes of loss in a basic insurance policy (see ISO coverage form CP 1010 as an example). The broad form (ISO CP 1030) provides coverage for all events unless excluded and Riot and Civil Commotion are not typically excluded. This has been standard in policy language for many years. Insurers will rely upon their actuarial analysis for rating in years to come, but they do build into their analysis damage from larger events (such as hurricanes and tornadoes). While these events are not as common as weather related events, they do happen and insurers have ways to account for that in their premium analysis.