When we all started working from home and life as we know it forever changed, the business community found out despite paying insurance premiums that its losses would not be recovered. About this time, a close friend who is a part-owner of a business in the Philadelphia suburbs called me and I could tell immediately that this conversation would be different from our usual jovial banter. Neither one of us was in a joking mood as the fear of the virus made us worry about the health of our families, friends, co-workers and country.  He shared an additional worry. Prior to COVID-19, his business was thriving and growing but in one fell swoop, his business was interrupted. Its once promising future was now uncertain.

Sadly, businesses of all shapes and sizes—restaurants, bars, retail stores, dental and medical practices, hotel owners, service providers and more have lost revenue. Unless the business was lucky enough to be deemed an essential business, it closed up like a clam when governmental authorities shut down the economy.  Unlike the smiling pitchman in the commercial, your business was not in "good hands."

My friend and many other business owners we have counseled lost their optimism. While they purchased commercial property insurance policies with loss of business income protection, it turned out to be an illusion. Most made a claim only to receive a denial letter. Some of the carriers' websites even proudly proclaim all business interruption claims will be denied.

This article discusses how to fight back.

Interpretation of Insurance Contracts

When interpreting insurance contracts, i.e., the policy, coverage is to be interpreted broadly, while exclusions should be interpreted narrowly. The reasoning behind this is rather simple. First, these policies are generally "all-risk" policies meaning that insurance is provided unless the coverage sought is explicitly excluded. Second, the vast majority of insureds have no bargaining ability when it comes to changing or altering the terms of the insurance contact. Given this inequity, the law requires insurers to act in good faith toward its insureds:

Because the insurer is in the business of writing insurance agreements, the recent trend in insurance cases has been away from strict contractual approaches toward a view that insurance policies (and other insurance contracts) are no longer private contracts in the traditional sense (if they ever were). The traditional contractual approach fails to consider the true nature of the relationship between the insurer and its insureds. Only through the recognition that insurance contracts are not freely negotiated agreements entered into by parties of equal status; only by acknowledging that the conditions of an insurance contract are for the most part dictated by the insurance companies and that the insured cannot "bargain" over anything more than the monetary amount of coverage purchased, does our analysis approach the realities of an insurance transaction. See Pressley v. Travelers Property Casualty, 817 A.2d 1131 (Pa. Super. 2003).

This means insureds must be told in clear language what their policies provide. Our Superior Court has held that "the proper focus regarding issues of coverage under insurance contracts is the reasonable expectation of the insured."  See Bishops v. Penn National Insurance, 2009 PA Super 225, ¶ 8, 984 A.2d 982, 990 (2009) (citing Bubis v. Prudential Property & Casualty Insurance, 718 A.2d 1270, 1272 (Pa.Super. 1998) (quoting Frain v. Keystone Insurance, 433 Pa.Super. 462, 640 A.2d 1352 (1994)). Further still, any ambiguity in the insurance contract must be interpreted in a manner most favorable to the insured.

Business Interruption Insurance

In the face of public policy for finding coverage, we must look at the specific policy language. In general, policies provide business interruption coverage for:

• Damage that arises from a physical loss to the insured's property; or
• Damage that arises from the actions of a civil authority barring "access" to the property.

Business Income Loss Coverage

In many commercial policies, business income coverage is worded as follows:

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 loss or damage or direct physical loss or damage to property at the premises.

Insurers' first line of defense is that COVID-19 does not involve any loss or damage on the premises, drawing a distinction between losses due to natural disasters like fires, hurricanes and earthquakes, for which coverage is afforded. This interpretation should be challenged. Very recently, the Pennsylvania Supreme Court was asked to address whether Gov. Tom Wolf's order shutting down nonessential businesses was constitutional.  See Friends of Danny DeVito v. Wolf, No. 68 MM 2020. In determining that the order did pass constitutional muster, our Supreme Court held that the governor had the power to issue the order because the pandemic was a natural disaster that allowed for emergency executive powers to be instituted. Thus, damage caused by this pandemic is indistinguishable from that caused by any other natural disaster.  The U.S. Court of Appeals for the Third Circuit has also weighed in on this issue. See Motorists Mutual Insurance v. Hardinger, 131 Fed.Appx. 823 (3d Cir. 2005). In Motorists, the Third Circuit, in overturning the district court's granting of summary judgment that contaminated water (bacteria) was not a direct physical loss, held that there was a genuine issue of fact whether the functionality of the Hardingers' property was nearly eliminated or destroyed, or whether their property was made useless or uninhabitable. Other cases have also similarly identified "damage" when interpreting policy language involving odors, ammonia, etc. See Gregory Packaging v. Travelers Property Casualty Co. of America, (D.N.J. Nov. 25, 2014); and Wakefern Food v. Liberty Mutual Fire Insurance, 406 N.J. Super. 524, 543 (App. Div. 2009).

To bolster the Supreme Court and Third Circuit opinions, we look to the CDC and OSHA guidelines that businesses should now follow to eradicate physical damage to their property. The CDC has published a nine-page "Guidance For Cleaning and Disinfecting" for public spaces, businesses, workplaces, schools and homes. This guidance sets forth in great detail what should be done to ensure the cleanliness and safety of one's business. OSHA has also prepared a 35-page "Guidance on Preparing Workplaces for COVID-19." These protocols are only necessary because of the damage that this pandemic has caused.

Actions of a Civil Authority

An extension of business income coverage is also available in most policies when a civil authority (local, state or federal) denies access to an insured's property. During this pandemic, there have been countless orders by local, county and state authorities that have required businesses to shutter their doors and deny access to them, their employees and customers. In addition to Wolf's order cited above, Mayor Jim Kenney and other governmental leaders have also issued orders that prohibit the operation of businesses that are not life sustaining. These orders all trigger civil authority coverage because the properties cannot be accessed: "When the action of a civil authority completely shuts down access to a party's premises, federal courts have held that the coverage in insurance policies similar to the one at bar are triggered. See Ski Shawnee v. Commonwealth Insurance, (M.D. Pa. 2010) citing Narricot Industries v. Fireman's Fund Insurance, No. CIV.A.01-4679, 2002 WL 31247972, at *4-5 (E.D. Pa. Sept. 30, 2002).

Conclusion

In this unprecedented crisis, insureds have a right to rely on paid for insurance coverage. Insurance should be "a bridge over troubled waters" rather than presenting additional hurdles to navigate. We lawyers must assist our friends, neighbors and families by taking the insurance companies to task.

Hundreds of business interruption lawsuits have been filed against insurers who would rather fight than pay claims. Many more suits will follow. Applications have already been made to the Judicial Panel on multidistrict litigation to establish an MDL to consolidate all federal cases. Other counsel prefer state court where in the absence of diversity of citizenship, carriers and brokers may face juries more quickly. Time however may not be on the side of small businesses. The business community deserves prompt attention to their plight.

Gregory S. Spizer is a shareholder at Anapol Weiss where he handles mass tort, catastrophic injury and first party insurance cases, including business interruption losses. He can be contacted at 215-790-4578 or via ]email at [email protected].