No Lost-Income Insurance for Covid
Almost all loss-of-income and business-interruption insurance is part of companies’ fire insurance. In most policies, the loss-of-income must be caused by direct physical loss or damage to the insured property. Some policies also provide such coverage where the government orders the insured property closed, because of direct physical loss or damage to some other property, for example, when the building next door suffers a casualty and is in danger of causing catastrophic damage to the insured property. The Court of Appeal used the example of power lines downed by a storm which might cause the government to close access to the hotels.
The plaintiffs argued that the presence of the virus in the general neighborhood of the property constituted physical damage. The Court of Appeal suggested that, hypothetically, if a hotel were shut down in order disinfect the actual presence of dangerous contamination on that specific property, that might be covered. However, the county Covid 19 shelter-in-place orders did not arise from the presence of Covid contamination on property surfaces. They arose from the spread of the virus among the population in general. The Inns had not closed because of any contamination on its own property. The County had ordered them closed, because of the general infection rate throughout the county.
In The Inns by the Sea v. California Mutual Insurance Company, November 15, 2021, the Court of Appeal in San Jose, interpreted such policies and language to not provide those bed-and-breakfast hotels with coverage for income lost due to government orders to protect against the spread of Covid 19. There was no direct physical loss or damage.
The ruling was based solely on direct enforcement of the language in the insurance policies. It did not rely on any laws or principles of law, other than the ordinary rules of contract interpretation, that contracts mean what they say. Nonetheless, the language of these insurance policies is typical of most commercial property insurance policies and loss-of-income and business-interruption coverages. My broker reports that insurance companies are tightening up policies to make it even more clear that loss-of-income due to the presence viruses are not covered. The hypothetical by the Court of Appeal of shutdowns to allow disinfection of physical contamination by viruses, is being excluded out of policies. New policies and coverages to insure against Covid-type occurrences are not being offered.
If you have questions regarding a fire, personal injury or other casualty on your property, or possible insurance coverage, please do not hesitate to call us.