COVID-19 AND OHIO BUSINESS INCOME INTERRUPTION INSURANCE COVERAGE
With the interruption and shut down of businesses due to the coronavirus, some businesses may be examining their commercial insurance policies to determine if coverage may help them through this difficult time.
Most commercial insurance policies provide coverage for business income interruption. Business interruption insurance is coverage that replaces business income in the event the business is halted after a covered loss. Whether such coverage may apply to the pandemic created by COVID-19 will be highly dependent on the specific policy language. Most business income interruption policies require the income loss be caused by a direct physical loss or damage to business property. Whether the situation created by the COVID-19 pandemic constitutes a physical loss or damage to property will likely be addressed by numerous courts in the future as lawsuits start to be filed. Lawsuits have already been filed in Louisiana and California by restaurants forced to be shuttered due to the coronavirus. Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s, London, Civil Dist. Ct., Parish of Orleans; French Laundry Partners, et al. v. Hartford Fire Ins. Co., Superior Ct. of California, County of Napa.
Businesses in Ohio may benefit from recently introduced legislation. On March 24, 2020, the House introduced H.B. 589 to “require insurers offering business interruption insurance to cover losses attributable to viruses and pandemics and to declare an emergency.” The legislation seeks to construe business interruption insurance effective on March 9, 2020, the date Governor DeWine declared a state of emergency, to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic during the state of emergency. The proposed legislation has some limitations; it would only apply to businesses in Ohio who employ 100 or fewer employees and who work 25 hours or more a week. If the legislation passes and is signed by the Governor, this clearly will be a benefit to small business owners.
If the proposed legislation does not become law or for those businesses with more than 100 full-time employees, coverage for business income interruption may be dependent on whether losses created by the pandemic constitute a direct physical loss. While similar pandemic cases have not yet been decided by Ohio courts, insurers will rely on case law which construes “physical loss” narrowly. In Mastellone v. Lightning Rod Mut. Ins. Co., 884 N.E.2d 1130 (Ohio Ct. App. 2008), the court held that mold on the siding of a home did not constitute physical loss because the mold did not affect the structural integrity of the home and could be easily cleaned off the siding. Courts in other states have held that direct physical loss can be met even in situations where the damage is not tangible, structural or even visible. In Colorado, the presence of gasoline fumes in a building that rendered it uninhabitable was found to meet the “direct physical loss” requirement. Western Fire. Ins. Co. v. First Presbyterian Church, 165 Colo. 34, 437 P.2d 52 (Colo. 1968). In New Jersey, the release of ammonia in a facility that rendered it unfit for occupancy was a “direct physical loss.” Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of America, 2014 U.S. Dist. LEXIS 165232 (Dist. N.J. 2014). In Oregon, smoke from forest fires that impacted an outdoor Shakespeare festival was a “direct physical loss”, as was odor from a methamphetamine lab. Oregon Shakespeare Festival Ass’n v. Great Am. Ins. Co., 2016 U.S. Dist. LEXIS 74450 (D. Ore. 2016) (reversed on other grounds), and Farmers Ins. Co. of Oregon v. Trutanich, 858 P.2d 1332 (1993).
Ohio businesses facing income interruption due to the COVID-19 pandemic should consider submitting a claim for such losses sooner rather than later in order to preserve their rights under their commercial insurance policy. If you have questions about your business interruption insurance coverage, our attorneys are here to help. Call 513-852-5600 to discuss your potential claim, or fill out our contact form.