Does Civil Authority Coverage Apply to Quarantine Orders?

Are you preparing a business interruption (BI) insurance claim for losses resulting from quarantine orders in NYC? Have you already filed a claim, but had it denied by the insurance company? Call Douglas & London today to speak with a knowledgeable and experienced New York City business interruption insurance lawyer for free. We will review your policy language and losses and outline all of your legal options.

Please DO NOT ASSUME that a claim denial is the end of the process, or that your BI policy will not cover losses due to quarantine orders. The courts have not yet determined how policy language is to be interpreted in reference to the COVID-19 pandemic, and we expect extensive litigation on this issue in the coming months. Additionally, NY legislators are considering bills that would compel insurers to cover business losses due to the pandemic shutdown. Businesses that take early first steps toward filing claims will put themselves in a better position for quicker recovery of their COVID-19 business interruption losses.

There may be many avenues open to you for compensation that you have not considered, so please contact an attorney at our firm for a no-fee, no-obligation case review.

Does Civil Authority Coverage Apply to COVID-19 Shutdowns?

Business interruption insurance policies that include a civil authority provision generally cover losses associated with shutdowns that are ordered by regulators to the extent that there is physical damage to the insured business’ premises or some other nearby property.

Commercial insurers have been quick to claim that civil authority coverage does not apply to coronavirus quarantine orders because no business has experienced physical damage. This claim is contrary to a more broadly-accepted definition of “property damage,” which encompasses anything that prevents the use of commercial property, including bacteria and mold contamination.

The success of a business interruption insurance claim due to a civil authority order will ultimately turn on whether the order eliminated the functionality of the business’s property or otherwise made it useless or uninhabitable. 

Will “Virus” Exclusions Preclude a Civil Authority Business Interruption Claim?

Insurers have argued that virus-related losses are excluded from coverage under many standard form insurance policies and that a business must have a specific virus rider in its policy to be eligible for coverage.

Contrary to this argument, there is no standard virus insurance exclusion. Rather, each business interruption policy is unique. Even if your policy contains a virus exclusion, there may be other elements in your policy, such as civil authority provisions, under which you can make a claim for losses caused by quarantine orders.

Are Insurance Regulators Supporting Civil Authority Coverage Claims?

Legislation has been introduced or proposed in New York and in several other states to require commercial insurers to pay business interruption insurance claims for losses associated with COVID-19 quarantine orders. Insurance coverage is based on contract language, and it is too early to determine how this legislation will affect the interpretation of contract provisions when claims are being negotiated. Nonetheless, business interruption insurance attorneys are encouraged by this legislative support for their clients’ claims.

How Can a Business Prove its Losses from a Civil Authority Quarantine Order?

Beyond threshold coverage questions, the legitimacy of a civil authority coverage claim can be demonstrated by the sustained losses and lower sales that a business experienced as a result of a quarantine order. To prove the worth of your claim, your business should be prepared to show its losses with:

  • Monthly profit and loss statements reflecting a drop-off in business that correlates with the imposition of the quarantine;
  • Invoices and purchase orders showing reduced business activity;
  • Periodic production reports demonstrating lower product manufacturing or distribution;
  • Employment and payroll records;
  • Any other accounting reports (e.g., cost accounting statements, inventory, etc.) that demonstrate the contrast in business activity from before and after the quarantine.

When Should a Business File a Civil Authority Business Interruption Claim?

Many businesses are experiencing ongoing losses even as quarantine orders are incrementally lifted in New York. Any business that is unsure of the scope of civil authority coverage in its commercial insurance should contact a New York business interruption insurance lawyer for assistance in reviewing their policies.

Even if there is some doubt about coverage, the business should promptly notify its insurance carriers of its intent to file a claim because a delay in filing can give the insurer cause to deny the claim.

Call a New York Business Interruption and Civil Authority Lawyer

When you regularly pay insurance premiums to protect your business against losses, you have every right to expect that your carriers will pay the legitimate claims that you make under your policy, particularly when those losses are occasioned by quarantine orders issued by civil authorities that prevent you from conducting the regular day-to-day operations of your business. 

Please call Douglas and London if your business has experienced significant losses due to the New York quarantine orders. We are committed to helping you recover the full amount of insurance reimbursements that you deserve to help your business recoup its losses.