Devine Millimet | NH Law Firm

Business Interruption Insurance

Author: Devin K. Bolger

March 24, 2020

Across the country, state governments are taking a variety of measures to contain the spread of COVID-19.  Many efforts concern public operations, while others affect private enterprise.  California was the first of several states to issue a shelter-in-place order requiring a complete shutdown of nonessential business.  New Hampshire, for its part, has banned gatherings of 50 or more persons and restricted food and beverage sales to take-out and delivery orders (State of New Hampshire, Office of the Governor, Emergency Order No. 2 Pursuant to Executive Order 2020-04, March 16, 2020).  While less suffocating than the shelter-in-place orders issued elsewhere, this mandate will doubtless affect many businesses across the granite state.
Insurance might be available to ease the pain of virus-related business slowdowns.  Business interruption insurance protects against certain losses associated with emergency or disaster.  In most instances, coverage is triggered only upon the destruction or alteration of tangible business property, so interruption caused by government order or community-based efforts to reduce the spread of COVID-19 might not be insured.  But policies vary widely in their terms, and the scope of coverage is a case-by-case, policy-by-policy inquiry.  Some policies include civil authority provisions, which provide coverage for losses caused by government-required shutdown of operations.  A policy with such a provision could protect a business whose operations have slowed or halted following recent gubernatorial directives. 
So could a policy that defines “physical loss” to include scenarios where business property is rendered unusable or uninhabitable due to contamination.  The New Hampshire Supreme Court’s decision in Mellin v. Northern Security Insurance Co. provides an analytical starting point.  167 N.H. 544 (2015).  At issue in Mellin was the smell of cat urine.  According to the plaintiffs, the foul odor seeping into their condominium from the unit below was so bad that they couldn’t rent their unit and had to sell it for less than it would otherwise fetch.  The plaintiffs asked the New Hampshire Superior Court to rule that they suffered a “physical loss” under their homeowner’s insurance policy.  The trial court answered in the negative because the property suffered no “tangible physical alteration,” but the higher Court disagreed.  The Court surveyed decisions from other jurisdictions and concluded that the feline perfumes could have caused “distinct and demonstrable alteration” of the insured property sufficient to qualify as a physical loss.  The Court further explained, “[e]vidence that a change rendered the insured property temporarily or permanently unusable or uninhabitable may support a finding that the loss was a physical loss to the insured property.”  The matter was remanded back to the trial court for further factual findings.
Mellin arguably supports the notion that COVID-19 could cause a physical loss if traces of the virus are identified on the insured property, however, results will vary depending on how physical loss is defined in the policy.  As with every case, whether coverage exists is a question best answered by the policy itself (and, of course, applicable law).  Business interruption insurance sometimes exists as a standalone policy, though it might also be found in a general commercial liability or property insurance policy.  Other provisions to keep an eye out for: contingent business interruption, supply chain, all-risk, and political risk coverage.  These varieties of insurance might kick in where a business, though not required by law to cease operations, is nonetheless affected by shutdown of suppliers or other contractors. 
Businesses should review all policies on file to determine what, if any, coverage is available.  The policies will specify the nature of the insured losses (check the “coverages” and “exclusions” sections) and the required time period to make a claim (the timer could already be ticking, so this should be done sooner rather than later—notice provisions are strictly enforced).  Businesses should likewise take care to keep records of their losses.  Payroll, sales receipts, and documents showing costs and expenses could be critical to a claim, especially where those documents clearly illustrate the dichotomy between pre- and post-interruption business performance.

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