Venable recently hosted a webinar to offer guidance on some of the key insurance issues facing developers, owners, and contractors as the COVID-19 pandemic disrupts construction projects across the country. Panelists, including Venable partners Sue Golden, Patrick Boyle, Jessie Beeber, and Sarah Cronin, along with Albert Sica, founder and managing principal of The ALS Group, offered these insights:
- Review Your Insurance Policies. Developers, owners, and contractors who have had a construction project shut down or who have experienced a disruption should seek professional guidance to assess their insurance policies for a potential claim. Putting your insurer on notice is key. Even if you see language that you think may limit your claim, you should ask for a professional's assessment. Insurance policies may be interpreted very differently by different courts, and the law is evolving quickly in the unusual circumstances surrounding COVID-19.
- Policies Offering Business Interruption Coverage. Anyone considering whether a business interruption claim may be covered can look to at least three potential sources: property policies, builder's risk policies, and environmental policies.
- "Physical" Damage Does Not Mean Only Structural Damage. Regarding property and builder's risk policies, there are generally three different elements that need to be met in order to qualify for coverage. The insured must have experienced a loss; the loss must have been to covered property, and one of the specifically named "perils" must be triggered, or in an "all risk" policy, the cause of the loss cannot have been specifically excluded (though see below regarding legislative changes to the common bacteria and virus exclusion). Even when policy language refers to loss as "physical" loss, courts have made it very clear in rulings across the country that "physical" loss does not mean only structural damage. Many different things that do not cause structural damage have been covered under these policies, including odors and chemical substances. Any condition that renders a property unusable or uninhabitable may be sufficient to satisfy the physical loss requirement of an insurance policy.
- Exclusions and Conditions. Policies (even "all risk" policies) may contain exclusions that could cause insurers to deny coverage in the current situation. For instance, a policy may include a clause that purports to exclude coverage 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." Even with such an exclusion present, you should still seek professional guidance to review the specific language of the exclusion and how it interacts with the coverage available under the policy. There are many options for insureds to explore. For instance, a property or builder's risk policy may provide additional coverages that are not excluded, or a different policy, such as an environmental policy, may expressly cover the loss.
- Renewals, Extensions, and Expirations. It's very important for insureds to keep a close eye on extensions and renewals of their builder's risk policies, and work with their brokers to secure extensions where possible.
- Legislative Developments to Provide Coverage. As of the time of the webinar, six state legislatures – Louisiana, Massachusetts, New Jersey, New York, Ohio, and Pennsylvania – introduced legislation that would require insurers to cover business interruption losses from COVID-19, regardless of existing policy language that provides exclusions (now seven states). The team is providing regular updates here as states introduce legislation.
- Additional Coverages. As noted in section 4, even where policies contain exclusions, they may also contain additional coverages that may be applicable in the current situation. For example, additional coverage for "soft costs" may provide reimbursement for certain expenses incurred because of construction delays. These soft costs can include extra interest incurred on loan extensions; architect, engineer, and consultant fees; additional rents; legal fees incurred because of extended lease negotiations; and more. Another important coverage that may be applicable in this circumstance relates to "civil authority." This coverage can be triggered when a governor, mayor, or other civil authority orders a project to be shut down. Typically, civil authority coverage is not contingent on meeting physical loss requirements and will cover business interruption losses for a specific period of time, depending on the policy language. Similarly, policies may also include ingress/egress provisions that trigger coverage when access to a site or property is prevented for any reason.
- Environmental Policies. As noted previously, environmental policies may also provide coverage in the event your construction project is shutdown. Such policies often contain a "pollution condition" coverage trigger that may even specifically refer to viruses, even as insurers potentially argue that those provisions are not relevant, if the contaminant (or virus) was not actually present on the site (and therefore did not directly cause the shutdown).
- Practical Tips on Filing a Claim. When drafting a notice of a claim to an insurance company, insureds should identify the policy under which they are making a claim and that the insured is experiencing some kind of loss – even if the extent of that loss may not yet be known. It is not necessary (or advisable), however, to be specific about why the claim should be covered under any specific policy. In general, claim notices should be as broad as possible. You may want to ask an insurance professional to review your claim before it is submitted.