business interruption insurance

By Richard Rizk

On March 24 Governor Kate Brown ordered closure of a wide range of business from barber shoppes to yoga studios. She also limited Oregon restaurants to takeout orders, severely reducing restaurant revenues.

If your Oregon business was closed or severely impaired due to the coronavirus and its fallout, a commercial insurance policy may be one of your most valuable assets. Below, learn more about how to get the most of this insurance policy during the current crisis.

Requesting a Certified Copy

Each policy is different, so as a first step I suggest contacting your insurance company in writing to request a certified copy of your entire insurance policy including all endorsements. I suggest requesting a certified insurance policy to keep the insurance company honest about policy terms.

A certified policy will contain an affidavit from someone at the insurance company certifying that the document is the actual, complete policy. You can request a specimen policy, so you have an idea of your coverages, but specimen policies can be incomplete or incorrect.

Policies are assembled by insurance staffers who sometimes make mistakes. Insurance policies are made up of many different forms identified by a number, usually on the bottom of the form. The key to the insurance policy is the “declarations page,” which lists the numbers of all the forms that should be included in the policy.

Once you get your policy, check to make sure that each number on the declarations page corresponds to a policy form in the policy with the same number. Although each policy is a unique blend of forms, the forms used throughout the insurance industry are standardized and known as “ISO” forms.

Changes After SARS Outbreak

In 2003 a company known as Mandarin Oriental received a $16M payout for a business interruption claim arising from the SARS outbreak. In response, insurers rushed to amend ISO forms to attempt to limit insurance coverage for communicable diseases. Nonetheless, for reasons I am not sure of, many policies I have seen recently do not clearly preclude such coverage. More commonly, I see exclusions for losses caused by “fungi” including mold or bacteria, which is most probably not applicable to coronavirus losses.

Legal Precedent on Business Interruption Insurance Claims

Under Oregon law, ambiguous policy terms are “construed against the drafter”. See, St. Paul Fire v. McCormick & Baxter 324 Or 184 (1996).  In that case, which involved insurance coverage for environmental pollution, the Supreme Court of Oregon found the term “sudden” ambiguous where the policy only provided environmental coverage for “sudden and accidental” releases. As a result, the court, declared the sudden and accidental limitation to coverage invalid in affording coverage for the loss.
The McCormick and Baxter decision teaches us that just because an insurance company denies coverage, it does not necessarily mean a court will agree. In Oregon, ambiguous policy terms will be stricken from the policy.

Oregon courts have found policy terms ambiguous when the plain meaning is unclear, considering context and two or more reasonable interpretations exist. “…A term also can be considered ‘ambiguous’ if its meaning is not comprehensible for some reason, such as indefiniteness, erroneous usage, or form of expression. In such a case, … the court does not permit the party who drafted the term or phrase to benefit from the obscurity.” N. Pac. Ins. Co. v. Hamilton, 332 Or 20, 26, 22 P3d 739 (2001).

What to do if You are Denied Coverage

Oregon lawmakers did not think it would be fair to let a policyholder twist in the wind forever after a wrongful denial. They thought that six months would be long enough. Let me explain.

Oregonians who are denied claims by their own insurer are entitled to recover attorney fees and costs if the court eventually awards more than the insurer offered in the first six months after a proof of loss is filed with said insurer. See, ORS 742.061. The key is to get a “proof of loss” to the insurer as soon as possible so the clock starts ticking away the six-month waiting period.

An insurer may claim that a proof of loss must be completed on the insurer’s own form to trigger a proof of loss. That’s not required in Oregon.

In Oregon, a “proof of loss” is “Any event or submission that would permit an insurer to estimate its obligations (taking into account the insurer’s obligation to investigate and clarify uncertain claims) qualifies as a ‘proof of loss’ for purposes of the statute.”  Dockins v. State Farm Ins. Co. 324 OR 184 (1999).

One Oregon decision after Dockins found that a phone call to an insurer amounted to a “proof of loss” triggering the six-month clock. Maybe so, but the content of an unrecorded phone call can be difficult to prove.

For business interruption claims, you should send the insurer a cover letter with a clear heading “proof of loss”. The letter should summarize the loss and include attachments evidencing the lost income claimed. Be sure you can prove when it was sent. Keep in mind, business losses are ongoing so you will need to provide your insurer updated loss information as losses increase. Mention the original proof of loss in subsequent submissions.

Your policy may require “direct physical loss” or damage to” insured property by a covered cause of loss” as a prerequisite to business interruption coverage.  Expect your insurer to dispute whether this “physical loss” requirement has been met in the coronavirus context.

Oregon has yet to address this issue in the context of communicable diseases, but one 2016 case provides some guidance. In Oregon Shakespeare Festival Ass’n v. Great Am. Ins. Co. (vacated on other grounds, 2016), the Oregon Shakespeare Festival canceled four performances because of wildfire smoke and ash settling into its open-air theater. The Festival’s business-interruption coverage required “suspension” of business caused by “direct physical loss of or damage to property” to trigger business interruption coverage. The judge hearing the case found coverage.

The coronavirus is everywhere, albeit microscopically. And even where the coronavirus does not exist, it arguably diminishes the usefulness of property because of its stigma. For these reasons I think there are colorable arguments for direct physical loss to property in the coronavirus context, depending on specific facts presented.

Some specialized insurance policy endorsements add coverage for “communicable or infectious diseases” without a physical damage to property requirement. Such policy extensions are sometimes favored in healthcare, entertainment and food preparation industries.

Read your policy carefully. Policies differ in terms. Just because your neighbor has no coverage for business interruption does not necessarily mean you don’t.

In Oregon, many businesses are closed not because of the virus per se, but because of Governor Brown’s order. Look for coverage for business income losses because a “civil authority” prohibits or impairs access to the policyholder’s premises. Specific policy wording matters. Some policies with this coverage require “physical loss”, others don’t.

Contact Rizk Law Today to See if We Can Assist You

As you can see there are many moving parts here and each situation is unique. If you have suffered business income loss, have an insurance policy with some business interruption coverage, get your policy and give me a call. I would be happy to help subject to my availability.

Insurance coverage cases are uncertain by nature, so I am unable to take business interruption cases on contingency fee basis, but my firm offers reasonable flat fee options depending on your needs and circumstances.

Call Rizk Law at 503.245.5677 or email to set up a time to talk without fee or obligation.

Author: Rizk Law

Were you injured in an accident that was not your fault? Are your bills piling up while your pain and suffering seem to never end? Is an insurance carrier standing in your way of the money you need to get your life back on track? Then you need a lawyer who knows how insurance carriers think — and can fight them for the maximum compensation you deserve. You need Rizk Law.