Coronavirus Raises Business Insurance Questions: Does COVID-19 Qualify as Property Damage for Illinois Businesses?

We may be seeing just the tip of the iceberg when it comes to the impact of the COVID-19 outbreak on our country’s businesses and financial systems–to say nothing of the escalating strain on our healthcare system.  Businesses are enduring supply chain interruptions and learning how to cope with new, unpredictable, and sometimes unfulfillable consumer buying habits and needs.  Some businesses are closing altogether.  Businesses are losing revenue, and people are losing jobs. 

So, inevitably, questions will arise as to whether any damage or loss of profits can be covered by insurance. Most first-party business property damage insurance policies not only cover the physical destruction of premises–but also lost profits resulting from property damage.  This concept is known as “business interruption” loss. 

Does COVID-19 cause property damage?

Business interruption loss can arise from loss due to damage to the policyholder’s own property or to the property of others if it impacts the policyholder’s business.  An insured may also be covered for a loss that occurs from:

• Damage to the property of a customer or supplier, (“contingent business interruption”), and from
• Damage to property that may attract customers to the insured’s business (“leader property”)

However, the triggering event for coverage under any of these concepts is the property damage itself. 

So, does the Coronavirus cause property damage? The answer is not a simple one.  While there has not yet been a report of physical damage to property as a result of the outbreak, Coronavirus is either airborne or transmitted through surface contact, so it’s everywhere.  In our buildings, stores, schools, churches, and public transit.  Even open-air outdoor spaces are not safe. 

There is precedent in prior court decisions for finding that the presence of harmful substances can constitute a business interruption loss so as to trigger coverage under a property damage policy.  A federal New Jersey court once found that damage caused by the release of ammonia was a covered loss under such a policy.  Other courts have made similar findings. 

Property Loss #1: Contingent Business Interruption

Many businesses will be most severely affected by losses due not to interruption of their business directly, but due to indirect losses caused by supply chain disruptions.  Many businesses will simply not be able to get the supplies or goods they need to continue operating.  In some cases, goods may be available, but transportation industry cuts and shutdowns mean there is no way to get these goods to distributors. 

These disruptions will only increase in number and frequency as the outbreak continues.  The supplier that triggers coverage isn’t limited to suppliers and manufacturers.  An airline or train line that brings customers to a business may also qualify.  It is not always necessary for the impacted party to have a contractual relationship with the policyholder.   

In an Illinois federal court decision from 1996, the court found that a food processing company was entitled to contingent business interruption coverage due to property damage suffered by the Army Corps of Engineers, which operated riverboat channels that flooded.  The plaintiff, in that case, was entitled to be reimbursed for the loss of crops by farmers that would have been sold to the plaintiff via intermediary companies. 

Property Loss #2: Leader Property

It seems like far longer than a week ago that then NBA suspended its season after Utah Jazz Center Rudy Gobert tested positive for coronavirus.  Since then, all revenue-generating events (not just sporting events) have been postponed or canceled altogether. 

Closures of non-essential business activities in large metropolitan areas may trigger “leader property” coverage.  This type of insurance covers businesses for lost earnings from the shutdown of property that attracts customers to the policyholder’s business.  For instance, the suspension of major league sports may trigger leader property insurance coverage for hotels or bars that depend on stadium traffic for revenue. 

Is your business suffering from the COVID-19 crisis? Contact us today

If you have a question about whether any type of property damage coverage may be applicable to your situation, you should contact the attorneys at the Shannon Law Group at (312) 578-9501.