Restaurants and Bars were forced closed yesterday in Houston and Dallas. The Mayor of Austin, Steve Adler, followed suit today ordering all Restaurants and Bars to close due to COVID-19. This is only in reference to Dine-In services. They will continue to allow carry-out or delivery. The Mayor also limited gatherings to 10 people. Being that GrayStone Insurance Group specializes in the restaurant and bar industry, our phones and emails have been blowing up over the past week from restaurant owners, attorneys, CPA's and the list goes on, all asking the same question; is there coverage? The simple answer to this is that nobody knows, not even the insurance carriers. Every policy has different wording when it comes to business interruption coverage. I like to pride myself in my transparency when in discussion with my clients and preempt their expectations when it comes to this. With that being said, this is an unprecedented situation since COVID-19 failed to exist prior to December 2019. I have been researching online, discussing with the carriers, and reviewing policy language on multiple policies to get a better grasp on what is available and what is excluded.
First, you have your standard business interruption coverage which is triggered by direct physical loss to the property due to a covered peril in the policy. This means that you must sustain damage at your establishment due to something that is covered in your policy for example, fire, lightening, explosion, vandalism, malicious mischief, and the list goes on. As far as I know, COVID-19 does not cause physical damage.
Most policies will include an additional coverage called Civil Authority. This is where most people are looking for coverage as it is triggered by a forced closure by a governmental authority. The caveat here is that even the Civil Authority requires direct physical loss, but is in reference to property other than property at the described premises on the policy and must be caused by a covered peril in the policy. The following is wording directly out of a Chubb Package Policy in regards to Civil Authority:
"When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply:
(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and (2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property."
Then you have the additional coverage of Communicable Disease which is on some commercial policies. The likely reason that this endorsement will not apply is that most policies state that it must be transmitted through one or more of your employees. I have included a sample wording from the same Chubb policy referenced above for the communicable disease.
"1. Food Contamination
a. If your business at the described premises is ordered closed by the Board of Health or any other governmental authority as a result of the discovery or suspicion of food contamination, we will pay:
(1) The actual loss of Business Income you sustain due to the necessary “suspension” of your “operations; and
(2) The following Extra Expenses: Insured Copy FA-47549 (02/16) Includes copyrighted material of Insurance Services Office, Inc., with its permission. Page 18 of 20
(a) To clean your equipment as required by the Board of Health or any other governmental authority;
(b) To replace food which is, or is suspected to be, contaminated;
(c) Necessary medical tests or vaccinations for your “employees”; and
(d) The cost of additional advertising to restore your reputation.
b. This Coverage Extension for Business Income and the cost of additional advertising will begin twentyfour hours after you receive notice of closing from the Board of Health or any other governmental authority and will apply for a period of up to 90 consecutive days after such coverage begins.
c. Food contamination means an incidence of food poisoning to one or more of your patrons as a result of:
(1) Tainted food you purchased;
(2) Food which has been unintentionally stored, handled or prepared improperly; or
(3) A communicable disease transmitted through one or more of your “employees”."
To make matters worse, a lot of commercial policies include an Exclusion of Loss due to Virus or Bacteria. This exclusion applies to all property coverages in a policy including business income. Again, from the same Chubb policy referenced above, the following is a copy of that particular exclusion:
This endorsement modifies insurance provided under the following:
COMMERCIAL PROPERTY COVERAGE PART
STANDARD PROPERTY POLICY
A. The exclusion set forth in Paragraph B. applies to all coverage under all forms and endorsements that comprise this Coverage Part or Policy, including but not limited to forms or endorsements that cover property damage to buildings or personal property and forms or endorsements that cover business income, extra expense or action of civil authority.
B. 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. However, this exclusion does not apply to loss or damage caused by or resulting from "fungus", wet rot or dry rot. Such loss or damage is addressed in a separate exclusion in this Coverage Part or Policy.
C. With respect to any loss or damage subject to the exclusion in Paragraph B., such exclusion supersedes any exclusion relating to "pollutants".
D. The following provisions in this Coverage Part or Policy are hereby amended to remove reference to bacteria:
1. Exclusion of "Fungus", Wet Rot, Dry Rot And Bacteria; and
2. Additional Coverage --- - Limited Coverage for "Fungus", Wet Rot, Dry Rot And Bacteria, including any endorsement increasing the scope or amount of coverage.
E. The terms of the exclusion in Paragraph B., or the inapplicability of this exclusion to a particular loss, do not serve to create coverage for any loss that would otherwise be excluded under this Coverage Part or Policy. "
If you have made it this far in reading this post, then you can understand why this is a difficult answer and leaving so many questions. Every policy language is different and the above is just a sample from one policy. So, with all that being said, and what I am recommending to my clients, it is best to review your policy and contact your agent to file a claim on your behalf. At this point it is in the carrier's hands to determine coverage on an individual policy basis. If you disagree with the carriers findings or results, you will need to contact legal advice moving forward.
