By Kevin Oklobzija, originally published in Rochester Business Journal on April 17, 2020.

There’s more to business interruption insurance exclusions than mere words

Just because your business interruption insurance policy says you’re not covered for a virus-caused emergency shutdown, you would be wise to file a notice of claim anyway.

That’s because the courts still may rule in your favor, according to Kevin English and Ryan Lema, partners at Phillips Lytle LLP whose areas of expertise include insurance contracts and commercial litigation.

“The insurers are the drafters of these policies and any ambiguity will get construed against the insurer,” English said. “Under New York’s construction, and almost in every state’s construction, when there is an ambiguity in a contract, that ambiguity gets resolved against the drafter of the contract.”

A significant percentage of businesses do have some form of coverage for an interruption caused by a disaster. Coverage also could come from multiple policies.

Insurance companies, however, learned the hard way from the SARS outbreak in 2002 and 2003 that a health pandemic caused by a virus can be very costly. As a result, many insurers began to include exclusions in policy contracts that specifically noted a virus-caused interruption would not be covered.

“But in the policies I have seen, any mention of a virus is an exception to an exception to an exclusion,” English said.

“And even when there are exclusions that reference viruses specifically, where it looks on its face to be clear, there is still some value in placing your insurer on notice to protect your rights,” Lema advised.

There’s no guarantee the insured party will win, but there’s also nothing to lose, the lawyers said.

The lawyers cautioned that businesses shouldn’t turn to their insurance broker for advice. That’s probably not an independent voice, they said.

“We have had clients say to us, ‘I’ve called my broker to see if there’s coverage and my broker said there’s no coverage,’ ” English explained.

Said Lema: “Typically, brokers shouldn’t be suggesting there isn’t coverage.”

That said, business owners impacted by the coronavirus crisis should make sure they take advantage of all possible relief. U.S. Rep. Joe Morelle (D-Irondequoit) said that since questions abound about covered exceptions in interruption insurance coverage, businesses should consider the Paycheck Protection Program. The forgivable loan option, which is part of the CARES Act, ran out of money Thursday but Congress is expected to renew its funding in the next phase of economic relief.

“If you’re a small business, not that it wouldn’t make sense to get some claim in on your business interruption insurance, but I think by the time you’re through trying to get to it, it would just be so much easier to access the Paycheck Protection Program,” Morelle said.

“That’s going to cover not only your payroll but your health insurance benefits if you provide them for employees, it’s going to cover your rent and mortgage payment, and any debt service you may have. So as long as you don’t reduce headcount, it’s 100 percent forgivable.”

New York and several other states are discussing possible legislation that would require insurance companies to pay on business interruption claims. Insurance industry lobbyists are already fighting back.

“They’re saying it would violate the contract clause of the Constitution,” Lema said. “I don’t think it’s as clear-cut as insurance companies make it out to be, though.”

What becomes of proposed legislation isn’t known. Nor can anyone say with certainty how courts may rule on claim disputes. That’s why lawyers say do what you can now so at least you’re not excluded from possible relief.

“If you are a policyholder, you don’t want to be in a situation where you didn’t give your insurance holder a notice of claim,” English said. “Identify what policies you have that might provide coverage and put your carriers on notice that you’re in the game.”