The following article was provided by Kenney & Sams, P.C., a law firm based in Boston with a construction and real estate representation practice.

Our clients are asking us: Do commercial property and, specifically, business interruption insurance policies provide coverage for COVID-19-related losses?

As discussed below, it is critical that you promptly review your company’s policies, exclusions and relevant endorsements to evaluate whether your business has coverage in the wake of COVID-19. If appropriate, you should make a claim with your insurance carrier.

Business Interruption Insurance Overview

Business interruption insurance. Commercial property policies often include business interruption or business income coverage that is designed to protect prospective earnings of a business. That is, the coverage indemnifies a policyholder for losses arising from the business’s inability to operate normally, provide its services and fully function.

Coverage is generally triggered by total or partial suspension of business operations due to the impairment, damage, destruction, or loss of the use of a building, machinery, equipment, or other business property. Picture the sprinklers going off and drenching files, flooding computers, and forcing a business to shut down or reduce profits while they make repairs.

This coverage generally lasts for the “period of restoration,“ meaning the time it takes to repair or rebuild the damaged property.  In other words, your policy would optimally pay repair costs and reimburse you for lost operating revenue while your business remains closed.

Notably, to establish a business interruption claim, you must prove (a) a direct physical loss or damage to property at the insured’s premises; (b) that necessitates suspension of operations; and which (c) directly causes the business income loss.

Key Exclusions/Endorsements to Consider

Many policies include an endorsement that specifically excludes damages caused by viruses or bacteria called formally the “Exclusion of Loss Due to Virus or Bacteria Endorsement.” The key to understanding coverage, therefore, is first to determine whether your policy includes this endorsement. If it does, you may not be covered. For policies that include the standard Exclusion of Loss Due to Virus or Bacteria Endorsement, coverage will likely be precluded.

Where a policy includes the Exclusion of Loss Due to Virus or Bacteria Endorsement, courts must first consider whether the claim satisfies the insuring agreement, i.e., whether coronavirus contamination constitutes a “direct physical loss or damage to covered property.”

Is a Coronavirus Infection a “Direct Physical Loss or Damage to Covered Property” to Trigger Coverage?

As set forth above, to trigger business interruption coverage, there must be a direct physical loss or damage to the premises. How courts interpret this language in the context of COVID-19, however, will impact businesses throughout the world and have staggering societal, economic and legal implications. What if, for example, an employee, visitor or tenant tests positive for the coronavirus, forcing owners to close? What if testing reveals coronavirus on the surface of a countertop in a company’s kitchen or on a piece of equipment at a jobsite? Would that be evidence of “direct physical loss or damage?”

The answer to that question may come down to whether an insured party can convince their carriers and the courts that the existence of the deadly virus at the premises constitutes physical loss or damage to property.

Already, insureds are racing to the courthouse for a judicial determination of coverage. A restaurant in New Orleans recently filed suit asking the court to determine whether state and local restrictions on public gatherings and restaurant operations trigger coverage. The complaint states that “the deadly virus physically infects and stays on the surface of objects or materials, ‘fomites,’ for up to 28 days, particularly in humid areas below 84 degrees.” “Fomites” are inanimate objects that can become contaminated with infections agents and, in turn, cause the virus to transfer from object to human. Expect courts to hear that word often in the coming months and years.

Additionally, the complaint alleges that it is “clear that contamination of the insured premises by the coronavirus would be a direct physical loss needing remediation to clean the surfaces of the establishment.”

Does the presence of a virus on the physical property, causing shut down, trigger coverage? Must an infected person first contaminate the physical property, with a test determining the virus was on the actual building or its interior — or is a positive test by a single occupant of the building enough? What if COVID-19 is found on a piece of equipment at a jobsite, but no one is infected, and the company voluntarily shuts down? Will businesses be able to successfully argue that coronavirus at a premises, causing fomites to exist and businesses to close, constitutes a physical loss to the property?

Is coverage available when a construction project is shut down by the government, or work is voluntarily stopped before COVID-19 is detected at the job site?  

At a minimum, companies seeking to claim a business interruption will likely have to show their policy did not include a “Virus Exclusion.” Next, policyholders would need to convince a court that the presence of the coronavirus is a physical loss to the premises, just like noxious fumes or other contamination at a premises, and that this physical loss and damage to the property caused the business operations to suspend, resulting in loss of business income to the policyholder.

Third-Party Claims and Commercial General Liability (CGL) Coverage 

Companies may also be faced with third-party liability claims arising out of the COVID-19 pandemic. A CGL policy covers damages for “bodily injury” and “property damage” resulting from an “occurrence.” CGL policies often contain a Fungi or Bacteria exclusion, sometimes referred to as the “Mold exclusion,” which may limit coverage. If there is such an exclusion, the policy language will need to be examined to determine whether it is defined to include a virus or communicable disease.

There are countless questions that will need to be answered by insurance carriers, lawyers and, ultimately, courts over the coming months. With the stakes so high, litigants will push these arguments, relying on creative application of state and federal caselaw, the language of the policies and endorsements, and the facts of each specific instance of business interruption and loss.

NOTE: Massachusetts and possibly other states are considering rules allowing for retroactive coverage to include COVID-19 claims. Learn more.

Nathan Cole is a director at Kenney & Sams, P.C., and has been representing small businesses, construction contractors, subcontractors and home owners in Massachusetts for more than a decade.

On March 27, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law. You are probably aware that many taxpayers will be receiving a $1,200 recovery rebate check, but Congress also made tax changes for both individuals and businesses to help stabilize the economy and earmarked $349 billion for loans to small businesses and some nonprofits with fewer than 500 employees.

These relief provisions will help bridge the financial gap caused by loss of revenue, loss of productivity due to layoffs, increased supply costs, and paid leave requirements.

Do you have questions about how to access small business aid or navigate the tax implications for yourself or your business?

Join NAHB during a series of member-only webinars on Thursday, April 2 and Friday, April 3 to learn what the CARES Act means for home builders.

Visit our registration page to learn more and register today.

There is limited capacity for these sessions, so be sure to register early. If the session you want to attend is full, the recordings will be available after the conclusion of the series.

As always, you can access the latest NAHB news and business resources to respond to this challenge in the Coronavirus Preparedness and Response section on nahb.org.

The U.S. Department of Labor today issued a new regulation, effective immediately, implementing the paid leave provisions of the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act, both part of the Families First Coronavirus Response Act (FFCRA).

FFCRA helps the U.S. combat the workplace effects of COVID-19 by reimbursing American private employers that have fewer than 500 employees with dollar-for-dollar tax credits for the cost of providing employees with two weeks paid sick leave for specified reasons related to COVID-19 and up to 10 weeks paid family medical leave to care for a child whose school or daycare is closed as a result of the pandemic.

The law enables employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus. WHD administers the paid leave portions of the FFCRA.

The rule also implements guidance previously posted by WHD outlining the limited instances in which businesses with fewer than 50 employees can qualify for an exemption from providing leave. A small business is exempt from mandated paid sick leave or expanded family and medical leave requirements only if the leave is requested because a child’s school is closed or a daycare provider is unavailable due to COVID-19 related reasons; and if an authorized officer of the business has determined that the employee provides an essential and irreplaceable function to the business that would hurt its operability.

The three criteria used to make that determination include:

• Such leave would cause the small employer’s expenses and financial obligations to exceed available business revenue and cause the small employer to cease operating at a minimal capacity;
• The absence of the employee or employees requesting such leave would pose a substantial risk to the financial health or operational capacity of the small employer because of their specialized skills, knowledge of the business, or responsibilities; or
• The small employer cannot find enough other workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services the employee or employees requesting leave provide, and these labor or services are needed for the small employer to operate at a minimal capacity.

Employers are not required to apply for an exemption – rather, they are instructed to maintain detailed documentation of the facts and circumstances that meet the criteria outlined by the Labor Department’s Wage and Hour Division (WHD) and retain that documentation in the event of an enforcement action.

The WHD will post a recorded webinar on Friday, April 3, 2020, to provide interested parties a more in-depth description and help them learn more about the FFCRA.

The IRS has also issued guidance on the tax credits employers may claim under the FFCRA.

Employers are encouraged to visit www.dol.gov/agencies/whd/pandemic for resources outlining the FFCRA’s benefits and requirements. A Fact Sheet for Employees and a Fact Sheet for Employers, available in both English and Spanish, and an expansive list of Questions and Answers  are among the tools provided by the Department of Labor.

Any business who will be claiming the employee retention credit, sick leave credit, and/or family medical leave credit, to the extent these credits exceed their payroll tax liabilities, can file IRS Form 7200 to get an advance on their anticipated tax refund.

You can view and print the form here.

Here are instructions for IRS Form 7200.

The IRS has also released additional guidance on the employee retention credit for businesses that have been financially impacted by COVID-19.

For addition information, see the NAHBNow posts on sick and family medical leave as well as on the CARES Act.

Though conferences and large events are currently facing challenges, planning for next year’s NAHB International Builders’ Show® (IBS) is well underway. IBS is an outstanding event at which to share your knowledge and expertise on topics that impact the home building industry. It is the housing industry’s largest annual light construction show in the world, and is co-located with the Kitchen & Bath Industry Show® as part of Design & Construction Week® (DCW), featuring a total attendance of more than 90,000 in 2020.

The 2021 IBS will be Feb. 9-11 at the Orange County Convention Center in Orlando.

Noteworthy for IBS 2021 Request for Proposal (RFP) Process:

• Proposals will be accepted for 60-minute Building Knowledge sessions, as well as Master Workshops and Tech Bytes.
• The full roster of presenters who are to appear on a session must be provided at the time of proposal submission. Each presenter’s profile information must be completed, and each presenter must verify his/her participation.
• Speaking opportunities are highly competitive — less than 25% of proposals received are selected — so please review the RFP document carefully and take advantage of our Guide to Crafting Your Proposal to ensure your proposal has the best chance of being selected.
• Deadline for submissions is April 24, 2020.

View the official RFP document, which includes attendee demographics, rules and guidelines for speaking and additional information for submitting a proposal.

Pay special attention to the Leading Topics of Interest included in the RFP. These are the topics attendees have noted they most want to learn about in 2021. Proposals that most closely align with these leading topics have the strongest chance of being selected.

You can also check out the education sessions presented in 2020 on BuildersShow.com.

If you have any questions or would like to recommend a topic or speaker, please contact Kirby Simmering.