COVID-19 – Business Interruption Insurance Coverage Update

New Jersey’s Bill A-3844 was introduced on March 16, 2020 and would have forced insurance companies to pay COVID-19 related Business Interruption (“BI”) claims even when “viruses” are specifically excluded from BI policies. However, it is currently being held from a floor vote in New Jersey’s General Assembly due to ongoing negotiations with representatives of the insurance industry.

While it’s unclear if the New Jersey bill will be passed and if other states may attempt to follow suit, businesses may start to take matters into their own hands. For example, a restaurant in New Orleans that was required to modify its daily operations due to local and state civil authority shutdowns due to COVID-19 concerns has filed a lawsuit against its insurance company (Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s London, et al., Civil District Court for the Parish of Orleans, Louisiana). The business is asking the Court to affirm that the insurance policy extends coverage from direct physical loss and/or from a civil authority shutdown due to a viral pandemic. The outcome could be telling for other similarly-situated businesses that are also experiencing losses due to COVID-19.

And it’s not just the States that are starting to act. The Federal government is also looking at ways to help businesses that are being impacted by this pandemic. On March 18th, a group of 18 U.S. House members sent a letter to the leaders of the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Independent Insurance Agents & Brokers of America, and the Counsel of Insurance Agents and Brokers requesting insurers to recognize financial losses under BI insurance policies. The insurance industry groups said they would not provide relief through BI coverage but would work to provide relief to insureds through different means.

Notwithstanding the mechanism of recovery – whether through insurance or by state or federal law - businesses should proactively set up separate accounts in their internal accounting system and collect financial documents to support any losses related to COVID-19 expenses, such as:

• Historical and current annual financial statements
• Federal and state annual tax returns
• Monthly profit and loss statements
• Budgets, forecasts, or projections done prior to and after the event
• Monthly bank statements
• Inventory reports
• Payroll records
• Invoices and purchase orders
• General ledger accounts established to account for any expenses related to the loss such as additional payroll, shipping, temporary facilities, etc.
• Documentation to support extra expenses including receipts, invoices, time sheets, advertising costs, etc.