Covid-19 and Business Interruption: Maximizing Insurance Coverage and Federal Grants Counsel wmclaw.com
Overview Overview Overview Overview Catastrophic Losses
Overview Overview Overview Overview 95% of Americans Subject to Stay-at-Home Orders
Overview Overview Overview Overview Devastating Business Interruptions • 26 million new jobless claims in 5 weeks ( 2 in 10 full-time American Workers) • Business interruption losses for U.S. small businesses are estimated to be $431 billion per month
Overview Overview Overview Overview Potential Sources of Recovery • Business Interruption Insurance Insurance • Federal Grants
Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Purpose • Protect the insured’s business against loss of income • Put the insured in the same financial position as if no loss had occurred
Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Coverage Grant • “We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property. . . . The loss or damage must be caused by or result from a Covered Cause of Loss.” ISO CP 00 30 10 12
Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance “Chain Rule” IN THE EVENT OF 1. A Discrete Event of Physical Loss or Damage 2. To Described Property 3. From a Risk of Loss 4. Where No Exclusion Applies 5. Which Causes an Interruption of Business Operations THE POLICY COVERS 6. The Defined Loss 7. For The Defined Indemnity Period
Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Physical Loss or Damage • Physical loss or damage means: “physical dispossession of property from the insured without their consent, or actual, substantive, physical changes to property that reduce the property’s worth or usefulness, as distinguished from changes that exist only in the minds of people.” � Loss of Use of Property Constitutes Physical Loss � Physical Destruction of Property Not Required
Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Coverage Extensions • Event Cancellation Insurance • Civil or Military Authority Interruption • Ingress/Egress • Contingent Business Interruption
Event Cancellation Insurance Event Cancellation Insurance Event Cancellation Insurance Event Cancellation Insurance • Covers business losses when an important event does not occur as planned • Many businesses buy this type of insurance when they are about to host a large meeting or conference that has the potential to generate income for the business • Typical Buyer: Tradeshows, Conferences, Expos, Consumer Shows, Annual Meetings, Conventions, Sporting Events, Concerts, Award Ceremonies, Fairs, Festivals • In response to the SARS outbreak, insurers adopted a SARS exclusion that may apply to other “Pandemics” and government-mandated quarantines
Interruption by Civil or Interruption by Civil or Interruption by Civil or Interruption by Civil or Military Authority Military Authority Military Authority Military Authority • Reimburses policyholders for BI losses incurred when access to property is prohibited by an order of a civil or military authority following a specified event • Potentially, no coverage extension has broader implications for Coronavirus claims
Ingress/Egress Ingress/Egress Ingress/Egress Ingress/Egress • Insures against losses arising when access to insured property is prohibited by something other than civil or military authorities • Historically, such coverage has not been available under ISO forms
Contingent Business Contingent Business Contingent Business Contingent Business Interruption Interruption Interruption Interruption • Reimburses lost profits resulting from an interruption of business at customers’ or suppliers’ locations • Coverage is generally triggered by physical loss or damage to the property of the dependent customer or supplier, or to property upon which the insured depends to attract customers
Coverage Extensions Coverage Extensions Coverage Extensions Coverage Extensions “Covered Cause of Loss” • “The loss or damage must be caused by or result from a Covered Cause of Loss.” • “Covered Cause of Loss” means Risks of Direct Physical Loss unless excluded or limited
Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion • “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion ISO Explanation “ While property policies have not been a source of recovery for losses involving contamination by disease- causing agents, the specter of pandemic or hitherto unorthodox transmission of infectious material raises the concern that insurers employing such policies may face claims in which there are efforts to expand coverage and to create sources of recovery for such losses, contrary to policy intent .”
Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Pending Litigation • Initial wave of coverage litigation • Analysis of initial wave of coverage litigation • Analysis of plaintiffs (restaurants, retail businesses, etc.,) • Types of coverage and policy language (presence of “virus exclusion”) • Predominate coverage arguments (property damage, loss of use, etc.) • Types of claims and requests for relief (declaratory judgement, bad faith, etc.) • Predictions and critical takeaways
Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Proposed Legislation • State legislation • New Jersey legislation (The New Jersey Assembly Bill 3844) • Other state legislation (NY, MA, OH, PA, SC, LA) • Federal legislation • Pandemic Risk Insurance Act of 2020 • COVID-19 Business Interruption & Cancellation Claims Fund • Predictions and critical takeaways
Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants Available Relief for Small Businesses The Original Coronavirus Aid, Relief, and Economic Security Coronavirus Aid, Relief, and Economic Security Coronavirus Aid, Relief, and Economic Security Coronavirus Aid, Relief, and Economic Security (CARES) Act (CARES) Act provided for $349 billion in loans/grants for (CARES) Act (CARES) Act Small Business through the Paycheck Protection Program Paycheck Protection Program Paycheck Protection Program Paycheck Protection Program (PPP) (PPP), and through national and local banks, and a $10 (PPP) (PPP) billion Economic Injury Disaster Loan (EIDL) Economic Injury Disaster Loan (EIDL) Economic Injury Disaster Loan (EIDL) program Economic Injury Disaster Loan (EIDL) directly from the Small Business Administration’s (SBA) website
Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants Two Main SBA Programs • Paycheck Protection Program • Economic Injury Disaster Loan (EIDL) Loans/Grants • $349 billion loan/grant program to • $10 billion loan/grant program at pay employees and expenses for SBA for small businesses, self- small businesses under 500 employed, and gig workers in employees, self-employed, and gig business before January 31, 2020 workers to help them stay afloat, if business in operation on February • Apply at: 15, 2020 https://disasterloan.sba.gov/ela/ • Apply at: Covid19relief.sba.gov Small businesses may apply for both PPP and EIDL, but costs may not overlap
The CARES Act Funds Exhausted The CARES Act Funds Exhausted The CARES Act Funds Exhausted The CARES Act Funds Exhausted • The original Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 and opened on April 3 for small businesses and sole proprietorships and on April 10 for independent contractors and self-employed. • $349 billion was provided in loans/grants for Small Business through the Paycheck Protection Program (PPP). • An additional $10 billion was appropriated for the Economic Injury Disaster Loan (EIDL) program administered directly through the Small Business Administration’s (SBA) website . Both programs were out of money 13 days later.
Distribution by State and Territory Distribution by State and Territory Distribution by State and Territory Distribution by State and Territory PPP Fund Allocation (April 16, 2020 PPP report)
Distribution by Industry Distribution by Industry Distribution by Industry Distribution by Industry PPP Funds Allocation (April 16, 2020 PPP report)
Recommend
More recommend
