WILL BUSINESS INTERRUPTION INSURANCE OR PROPERTY DAMAGE INSURANCE HELP PAY THE RENT AND OTHER FIXED COSTS DURING COVID 19 CLOSURE
Yesterday I wrote about suggestions that franchisees and retail tenants can take to move forward in these difficult times with the COVID 19 virus and forced closures. This article will briefly discuss another option – business interruption and property damage insurance claims.
When our firm reviews a lease for our clients, we strongly recommend that they take out at least 12 months of business interruption insurance. This insurance should cover the rent and other expenses that occur if there is a reason that the business is closed for a period of time. Typically this is due to a physical or structural reason for the closure. However, I believe that it could be argued that a forced closure due to a virus, is a physical reason for the closure. As such the business interruption insurance should then kick in and pay rent, payroll, etc. Since the virus is transmitted through the air and on surfaces, it arguably is physical damage to the property. The virus can arguably be present in stores, businesses, airplanes, etc.
Courts have found that dangerous substances found on or at a property can be considered “property damage” and trigger first party property insurance. A federal court in New Jersey, in 2014, in Gregory Packing, Inc. v. Travelers Property Cas. Co. of America, found that ammonia accidentally released in a building made the building unsafe for human occupancy. The court in that case found that structural damage was not necessary to a finding of property damage. Other courts have held similar conclusions.
Additionally, government ordered closures may trigger business interruption insurance where an “order of civil or military authority” is required. It is important to check with your carrier to see if either property damage insurance or business interruption insurance will apply in this instance. A creative broker should be able to assist you in making a proper claim.
In conclusion, I would strongly recommend that everyone pursue their property damage and business interruption insurance with their carriers to see if claims can be made. Seek the assistance of a good broker to help with filing the claim in a way that may facilitate the process.