Condo Media - September 2020 - 20

Insurers Say 'No' to Business Interruption Coverage

D

BUT BUSINESSES AREN'T TAKING 'NO' FOR AN ANSWER
Does the "business interruption"
coverage included in many property
insurance policies apply to COVID-19related claims? The question is less
relevant for community associations
than for other enterprises, but it has
attracted considerable media attention
and generated a ferocious debate
pitting businesses that are demanding
the coverage and legislators who
agree with them, against insurers,
who contend that their policies weren't
designed to provide the coverage
and specifically exclude it.
Although the condominium industry
is following this debate closely
(because it could affect the pricing
and availability of insurance generally),
community associations aren't among
the entities most likely to seek business
interruption coverage, because most
would be hard-pressed to demonstrate
either the interruption or the revenue
loss on which to base a claim.
An association might contend that
delinquent payments triggered by virusrelated job losses for owners interrupted
its revenue stream, "but that would be
a stretch," Joel Meskin, CIRMS, MLIS,
EBP, managing director of community
association products for McGowan
Program Administrators, believes.
For one thing, he notes, it is the owner's
income, not the association's, that the
virus interrupts. And the interruption
for the association, if any, would be
temporary; the statutory super lien in
most states ensures that associations
will eventually recover money owed
by delinquent owners.

PROPERTY DAMAGE REQUIRED
For any businesses seeking
compensation for COVID-related income
losses, the primary argument against
coverage is in the policy itself, Meskin
says. "Every business property policy I
know requires actual physical damage
to the property before coverage is
triggered." While the pandemic caused
businesses to close, he notes, it did not
damage their property.

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CONDOMEDIA September 2020

Property owners and legislators
demanding the coverage argue
that there is precedent for it in past
decisions finding that coverage was
required (before insurers added
exclusions precluding it) for closures
resulting from mold, Legionnaires'
disease, or other contaminants. COVID,
they contend, damages property and
prohibits its use in the same way.
Insurers say COVID isn't in the same
category because its direct impact on
property is superficial and temporary.
Unlike mold, which can require
extensive remediation, the virus can
be eliminated from a surface quickly
by disinfecting it. The lifespan of a virus
is also short, Meskin notes. "You could
wipe a virus all over your house," wait
a few hours or a few days, "and it will
have disappeared. It will be as if it was
never there."
A recent decision by a U.S. District
court in Oregon (Columbiaknit, Inc.
v. Affiliated FM Ins. Co.) echoed
those arguments. "The recognition
that physical damage or alteration of
property may occur at the microscopic
level does not obviate the requirement
that physical damage need be distinct
and demonstrable," the court held,
adding, "the mere adherence of
molecules to porous surfaces, without
more, does not equate to physical loss
or damage."
In the opinion of this court, at least,
COVID doesn't cause the "physical
loss or damage" business interruption
overage requires. "The policy language
couldn't be clearer," Gregory Pierce,
CPA, LIA, senior vice president at
NorthStar Insurance Services, Inc.,
agrees. "I don't see a lot of space for
law suits that are demanding coverage
to prevail."
Those suits are accumulating,
however, most of them coming, thus
far, from restaurants. That growing
list includes Legal Seafoods, which is
seeking coverage for losses suffered
by the 34 restaurants it operate in
Massachusetts and five other states.

FRENCH COURT SAYS "OUI"
These suits haven't produced any
decisions in U.S. courts yet, but a French
court ruled recently that an insurer
in that country was required to cover
revenue losses caused by the pandemic.
The insurer, AXA, decided not to appeal
and will pay claims covering more than
1,500 restaurants as a result.
The decision is being widely cited by
plaintiffs' attorneys here, but Meskin
doesn't think it represents a precedent
that will apply to U.S. insurers. U.S.
courts would probably decide the
case differently, he says, and if not,
"insurance companies here would
definitely challenge the decision."
Attorney Stephen Marcus, recently
retired from Marcus, Errico, Emmer &
Brooks, questions the blanket assertion
that business interruption coverage
doesn't apply to COVID claims for
the same reason he questions the
insurance industry's identical position
on community associations' commercial
general liability and directors' and
officers' liability policies. Why is it,
he asks, that on COVID claims, unlike
any others, the industry's response is
an unequivocal "no coverage," rather
than, "coverage depends on the policy
language and the claim?"
"As far as I know, no one has
actually read that AXA policy,"
Marcus notes. "How can they be sure
the language doesn't cover COVID
claims, and how can they be sure
the French court's decision wouldn't
apply here?" Marcus also wonders
why the insurance professionals with
whom he's spoken have responded
so furiously to the suggestion that it
might. "The [insurance industry's] overreaction makes me think there may be
something there."

INSURANCE INDUSTRY WARNING
The "something" triggering the angst
Marcus has detected in insurance
executives is probably the potential
cost if the industry has to cover
business interruption claims.
Condo Media - September 2020

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