COVID-19 Business Interruption Claims
Houston — April 21, 2020 There are certainly a number of novel issues that will arise from an insured making a business-interruption claim based on the coronavirus. To date, there have been numerous articles discussing the applicability of various policy terms and exclusions, dealing with issues of physical loss, ingress/egress, civil authority, communicable disease, bacteria, virus, pollution, and contingent business interruption. Aside from correctly interpreting the policy language, an insured must act carefully and cautiously when making a claim.
When handling a claim, an insurer generally has a duty to treat the insured fairly and candidly, give the insured all information necessary to present a claim, and not treat the claims process as if it is adversarial or similar to litigation. Unfortunately, insurers do not always adhere to these duties—especially when handling sizable BI claims. Hence, as unfortunate as it may be, a prudent insured should view the process with a critical perspective.
Use Your Broker
An insured should immediately notify its broker of the possible claim. A broker can put the insurer on notice and help with early, administrative steps. Some brokers are more helpful than others. Some are very client-focused and others are more passive. Regardless, they need to be involved in the process. With complex BI claims, a broker will often recommend the insured retain a financial consultant or lawyer to assist.
Be Aware of Deadlines
Deadlines for notifying and filing can arise quickly, and it is critical that the insured comply. Missing some deadlines can sometime form the basis for the insurer to deny the claim for improper notification. If the insured needs an extension, then that request should be made in writing. Even if the insured has not made a final decision about making a claim, it should notify accordingly. The last thing the insured needs before getting started is to get knee-capped by some technicality trap in the policy.
Preserve Your Documents
The insured should immediately maintain its emails, correspondence, and records in making the claim. It is imperative for the insured to preserve all records and communications as they will be important if a lawsuit is later required. In other words, the insured should treat the preservation of its documents in the same way it would treat them in the litigation context.
Log Requests for Documents and Information
Once the insured submits the BI claim, the insurer will usually make requests for more documents and information. It is usually best to designate a certain person or persons to act as the primary point of contact for the insured in dealing with the insurer. Oftentimes, the risk manager or outside consultant is in the best position to do this. In any event, it is important that the insured is consistent with its communication in this dialogue, and the insured should assume that the insurer will offensively try to use all of the insured’s communication in a subsequent lawsuit. The document requests and requests for information can be onerous, to say the least. At times, they can be downright abusive and nothing other than a basis to delay the process and set the stage for litigation. To that end, it is advisable for the insured to keep a detailed log of all of the insurer’s requests and all of the insured’s responses. The insured should also require that these communications are in writing and that verbal requests are followed up with written confirmation. And if the requested documents do not exist, the insured should say so. Maintaining a communications log should help defeat the insurer from making the claim years later that it requested information from the insured but never received it.
The insured should also be aware of its outside statements. Public statements, press releases, and public filings are often used by insurers to defeat a BI claim. As such, the insured should try to be consistent and make sure that its public statements are in line with its BI position with the carrier. If the insured has suffered a BI loss and does not mention the loss in a public statement or filing, the insurer will frequently use such an omission to suggest the loss is insignificant or non-existent. Likewise, the insured should try to make sure that employees are on the same page. Assuming a lawsuit, it is possible that certain intra-company communication will be discoverable. An insured can be sure that all inconsistent emails will be used offensively by the insurer.
Communicate with Customers and Suppliers
It is also a good practice to reach out to suppliers and customers. The consultants and accountants will evaluate existing and potential customers, and it is important to track and monitor the insured’s business decline. The insured should also keep logs of having to refuse customer orders or customer complaints about any delay. In sum, the more proof you have of customer loss, the more support you will have for your BI calculation.
Cautiously Approach Examinations Under Oath
Most policies give the insurer the right to conduct an Examination Under Oath (EUO) when investigating the claim. In accordance with its duty to cooperate with an investigation, an insured should comply with such a request in accordance with the policy. Not doing so can lead to a denial or a claim that the insured is breaching the policy. While the EUO is not a time for the insured to volunteer information, it is a time to honestly answer questions from the insurer’s counsel. It is effectively a deposition that is not governed by rules of procedure. As such, proper preparation is an absolute must for the insured. Unfortunately, this procedure can be used by the insurer as a litigation-preparation tool rather than a sincere, investigative effort. I once tried a business interruption/bad faith case in which the insurer conducted five EUOs before denying the claim. Once we were in litigation, one of the insurer’s representatives admitted that the EUOs were requested and used to prepare the insurer for eventual litigation. Retaining counsel for this process can help ensure the EUO is properly conducted under the terms of the policy and to protect the insured’s rights.
Insist on Responsive Communication
Complex BI calculations are sometimes subject to more than one methodology, depending on the policy. It is no surprise that accountants can arrive at different results, using different calculations and data. It is often the case that the consultants and the accountants for the insured will try to engage in a dialogue with the consultants and accountants for the insurer. Problems arise, however, when the insurer consultants only ask questions and fail to
give the insured any feedback on the insurer’s view of the claim or calculations. Such hesitancy to communicate on behalf of the insurer is certainly a red flag. In fact, it is very possible that the insurer retained a trial lawyer at the early stages of the process to direct or give significant input on the claims handling.
Sometimes insurers will delay the process, knowing that litigation is inevitable. Some will even assert formal claims of fraud against the insured in litigation, claiming that the insured intentionally inflated the basis of its BI claim and calculations. Accordingly, it is important for the insured to prepare itself to properly preserve its rights under the policy.
For more information, please contact Hunter Barrow.
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