Coronavirus Claims Investigation
On March 27, 2020, a policyholder sued his insurer in the Northern District of Illinois alleging that the insurer wrongfully denied a business interruption claim due to the COVID-19 pandemic and, in doing so, acted in bad faith. Big Onion Tavern Group, LLC, et al v. Society Insurance, Inc., No. 1:20-cv-02005 (N.D. Ill. March 27, 2020). The policyholder alleged that its insurer acted in bad faith by immediately denying its claim without conducting any investigation.
In evaluating a policyholder’s claim for business interruption civil authority coverage or under other policy coverage forms, in light of the Coronavirus pandemic, insurers should engage in a robust claims investigation before making any coverage determination. Towards that end, insurers should seek information from the policyholder including whether the policyholder has sustained a physical loss or damage to its property. It should also obtain information concerning whether the policyholder has sustained a complete or partial shut-down because of prohibited access to business property or whether it has sustained a complete or partial disruption of its business operations. The insurer should also request information regarding whether there is evidence of the active presence of the Coronavirus at the insured’s business or whether the insured’s loss resulted from precautionary or preventive measures implemented by the policyholder. Further, the insurer should seek to determine whether any testing of the policyholder’s business has been undertaken and whether the physical presence of Coronavirus has been documented. Finally, to the extent that the policyholder is making a request for civil authority coverage, a copy of the civil authority order should be obtained and reviewed to determine if the order makes specific findings regarding physical loss or damage relating to the virus.
Answers to these and other questions may help inform an insurer’s decision about the availability of coverage and the potential application of exclusions. Proactively seeking this information in connection with an insurer’s investigation will assist the insurer in making an informed coverage determination and in responding to a policyholder’s contention that an insurer acted with reasonable justification.