Eric M. "Rick" Ellsley of The Ellsley Law Firm.

Many small businesses in South Florida have suffered major losses as a result of government-ordered closures in response to the COVID-19 pandemic. Although some have received a bit of relief from the federal Paycheck Protection Program (PPP), many others have been left out and are feeling the pain. Some are even out of business forever.

Fortunately, most businesses have a viable path to recover some of their losses. Their hope is located in the language of the benefits provisions of their commercial insurance policies. This type of coverage is known as "business interruption insurance."

What is business interruption insurance? It is exactly what it sounds like: The insurance company pays money to the small business to cover the economic losses that the business sustains when its operations are interrupted. The interruption must result from an event or occurrence that the policy covers. Business interruption insurance coverage is generally found within a commercial property insurance or businessowners insurance policy.

Normally it comes into play when there is "physical loss of or damage to" the property that the business operates within. Hurricanes, fires, floods, etc. are common triggers of this type of coverage. Claims are made and often paid when the physical location of the business is damaged or even destroyed and thus income from the business is lost.

In this COVID-19 situation, businesses that have not been declared "essential" by the government have been forced to close their doors. Many insurance policies have a civil authority provision, which should pay the insured small business when a civil authority (i.e., the governor or mayor) issues an order preventing access to the business.

The key language in these policies often centers around what the policy defines as "physical loss of or damage to" the property upon which it operates. In many policies, "physical loss of" means that an insured business can no longer physically use the actual premises/property to operate its business. The premises has lost its function as a business. Depending on the language within each policy, "physical damage" is not always required.

The concept is similar to an insurer paying an owner to compensate the owner for a stolen company car or stolen production equipment. The items are likely to be in good shape and not damaged, but the insured owner has lost the use of the car or equipment, and thus the insurer pays the fair market value to replace those items.

Many of the policies we have reviewed do not even define what "physical loss of or damage to" means and without an explicit definition, the courts will likely deem the policies as "ambiguous" and the courts must then interpret the polices in a light most favorable to establishing coverage for the insured. The public policy supporting this outcome is based on common fairness. The insurance company drafted the wording in the policy, not the insured small business. If an important term of coverage is not specifically defined and thus the policy language is not reasonably clear and understandable to the average insured, then any ambiguity in the policy is to interpreted against the drafter, i.e., the insurance company.

Also, most policies in this business and commercial insurance space are ALL RISK policies that cover any cause of loss unless specifically excluded. As far as exclusions, the common one since H1NI years ago is the so-called "virus exclusion." Sometimes the insurance companies will use this exclusion to deny coverage in their initial response letter when the small business makes the claim. However, many policies do not have the virus exclusion so the insurers will not have that as an available defense to coverage.

Even if there is a virus exclusion, many are not enforceable for a variety of reasons: the exclusion does not include a pandemic;  the exclusion does not use the words "physical loss;" and the virus did not, itself, cause actual physical damage to the property of the business.

Going forward, there is some good news for policyholders who seek to be covered under their business interruption insurance policy. Right now across our nation there is a very strong and bipartisan political will to help small businesses. This may result in some favorable legislation being enacted that would help small businesses secure payment of these benefits from their insurers.

President Donald Trump stated at his April 10 press conference: "You have people that have never asked for business-interruption insurance and they have been paying a lot of money for a lot of years for the privilege of having it and then when they finally need it, the insurance company says, 'We're not going to give it.' We can't let that happen."

In Congress, House Resolution 6494 titled Business Interruption Insurance Coverage Act of 2020 seeks "to make available insurance coverage [under current insurance policies] for business interruption losses due to viral pandemics, forced closures of businesses, … and for other purposes."

At the state level, although Florida has yet to act, there is pending legislation in Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania and South Carolina that would legislatively void the "virus exclusion" in any business interruption insurance policy. Of course, the contracts clause of the U.S. Constitution, (Art. I, Sec. 10, Cl. 1) mandates that "No state shall … pass any … law impairing the obligation of contracts." Accordingly, there will be a brutal fight on the constitutionality of any of these bills, if passed.

In short, to obtain payment under its business interruption/business income loss coverage, small businesses generally need the following: A businessowners policy or a commercial property insurance policy with a business interruption/business income loss coverage with a civil authority provision. (These are standard coverages in most policies); Be paid and up to date on their premiums; Have documented financial losses as measured by their profit/loss statements over the last 12 months at minimum; and 4) Have been deemed "nonessential" (i.e., not a medical doctor, lawyer or grocery store, etc) as described in various government closure orders.

As all industries navigate the new economic landscape created by this pandemic, business interruption insurance coverage is a valuable tool in the toolbox.

Rick Ellsley is a board certified civil trial lawyer with The Ellsley Law Firm in Plantation. Contact him at [email protected].