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SPECIAL ALERT – Business Interruption Losses Caused by Lockdown Orders

Since California’s Governor ordered “non-essential” businesses to close their doors to the public in March 2020 due to the Coronavirus (also known as COVID-19) pandemic, many businesses have struggled to keep their employees and to get funding to open up when the lockdown order (also referred to as the shelter in place order) is lifted.

Most small businesses that qualify for the SBA’s Paycheck Protection Program applied for the loans, with varying degrees of success. However, in most cases, those loans will make up for some of the losses incurred by businesses in California due to the pandemic.

Some businesses have sought to make up for the losses by making claims on their commercial liability insurance policies. Under certain commercial “All Risk” liability insurance policies, all losses due to the interruption of business are covered unless they are specifically excluded. While most, if not all, of these policies specifically exclude losses incurred due to a virus or other contagion, it is important to note that most businesses in California have not actually been directly affected by the Coronavirus (i.e. due to employees becoming infected): Instead, business interruption losses have been realized due to the fact that the State and/or municipality where the business is located has ordered the business to shut its doors to its customers.

The State of California’s Insurance Commissioner Ricardo Lara (“Lara”) has noted that some insurance companies have dissuaded policyholders from filing notices claiming losses due to the shutdown. In response, Lara reminded insurers that California law requires “agents, brokers, insurance companies… fairly investigate all business interruption insurance claims submitted by businesses.”

It is, therefore, important that businesses include as part of their response to the statewide lockdown order a review of their commercial liability insurance policies in order to determine whether or not a claim should be made. While some of these claims are now the subject of litigation, the state or Federal Government may, in the near future, determine that all or part of the claims must be paid. It may be in your businesses best interest to make a claim on an “All Risk” commercial liability insurance policy if one is in place.

As with any tender of a claim to an insurance carrier, whether it is accepted or denied in full or in part may hinge on how the issue is presented. Should the claim be presented incorrectly, there is the very real chance that it will trigger an exclusion. It is important to note that it’s the insurance carrier’s burden to prove that an exclusion applies.

The attorneys at Vogt, Resnick & Sherak, LLP can help you review your commercial liability insurance policy to determine whether a claim should be tendered. We can also prepare the tender in such a way as to improve your chances of recovery under the policy.  Call us if you have any questions or concerns relating to this Special Alert or if you have any questions relating to your business needs.