By Brian T. Selogie

Just as businesses across Southern California and much of the United States were beginning the long process of recovering from forced closures and dismal earnings caused by the ongoing COVID-19 pandemic, recent protests and demonstrations, in some instances accompanied by violence, damage and looting, now threaten the economic survival of many businesses across the country. How and when affected businesses respond to the property damage, lost inventory, and business interruption posed by this latest challenge will depend largely upon whether insurance coverage applies under business owners’ general liability and special form insurance policies.  This provides an overview of the terms included and the coverage typically provided under a business owner’s policy, and it provides general guidance regarding the process of submitting an insurance claim, as well as the obligations owed to policyholders by insurers. 

What does a General Liability Insurance policy typically cover?

As an initial matter, the terms of and coverage provided under various insurance policies differ widely based largely on premiums paid, deductible amounts, the policies of the particular insurance carrier, and the election of business owners to secure coverage for specific causes of loss.  In that regard, most “general liability” insurance policies provide coverage for “bodily injury” or “property damage” resulting from “covered causes of loss.” Often times, the definition of “property damage” under general liability policies will include phrases such as “physical injury to tangible property, including all resulting loss of use of that property, as well as loss of use of tangible property that is not physically injured”.  Of course, reading and understanding your specific policy is critical. 

Understand your “Covered Causes of Loss” in your Policy

Although the definition of “property damage” mentioned above appears broad and wide-ranging, policyholders should be aware that most policies explicitly limit the scope of coverage for losses resulting from such damage to only those losses arising out of a “covered cause of loss”.  Again, the events that constitute a “covered cause of loss” vary widely from policy to policy, although a typical list of covered causes of loss may include: “fire; lightning; explosion, windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage.” 

Can I add a policy for more protection?

Yes. In addition to “general liability” policies, many business owners elect to hold coverage under so-called “special form”, “fire”, or “all-risk” policies.  The scope of such a policy is typically broader than that of a general liability policy, and includes coverage for all losses except those expressly excluded under the policy.  Special form policies may include coverage for losses related to issues such as damage to equipment, personal property, improvements, and inventory, as well as business interruption and rental loss. 

Review what is included and what is not included in your policy

Of note, policyholders should review the language of their policies very carefully to determine whether any losses or causes of loss are expressly excluded by the insurance company.  As an example all too familiar to myriad policyholders, many insurers have adopted the position that no coverage applies for any loss related to the COVID-19 pandemic, as those losses are specifically identified in so-called “virus exclusions”.  Accordingly, policyholders would be prudent to confirm that no such exclusion applies for the losses arising out of recent vandalism, riots, violent demonstrations, and looting.  As discussed further below, business owners should consider consulting with attorneys to evaluate the specific terms of their insurance policies, including both general liability and special form policies, in order to determine the coverage provided thereunder. 

How do I submit a business insurance claim?

The first step in submitting an insurance claim for any loss, including a loss arising out of recent violence, looting, and civil unrest, is for business owners to become familiar with the details of their particular policies.  Of course, reviewing an insurance policy can present a challenging, mind-numbing task, as policies often contain hundreds of pages of arcane, convoluted language along with myriad references, cross-references, and defined terms.  Nevertheless, an in-depth understanding of the terms of each particular policy is indispensable to preparing and submitting an informed, effective notice of claim or “tender” to an insurance carrier.  Once a business owner becomes familiar with the terms of a policy, he or she should evaluate the policy in order to determine whether coverage applies for the particular loss at issue— in this case, such losses may include damage to physical property, personal property, inventory, equipment and/or business interruption or lost revenue.  If the business owner believes that coverage applies, he or she ought to confirm whether the particular “cause of loss”— in this case likely vandalism, riot, or civil commotion— is also covered under the policy.  If so, the policyholder should attempt to articulate the basis for the claimed loss in a well-reasoned and comprehensive fashion.  Of course, the assistance of an effective attorney often makes the difference between acceptance of or denial by the insurance company of an insured’s tender of claim.  

What obligations does an Insurer owe to a beneficiary?

Under the law, an insurance carrier owes the insured a contractual duty as well as a duty of good faith and fair dealing with respect to the handling and payment of any claim.   Of note, the insurance carrier’s duty to protect the insured’s interests obligates it to investigate any claim thoroughly: “[I]t is essential that an insurer fully inquire into all possible bases that might support the insured’s claim … [A]n insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.”  Indeed, adequacy of investigation is “[a]mong the most critical factors bearing on the insurer’s good faith”.  In addition, “the insurer’s early closure of an investigation and unwillingness to reconsider a denial when presented with evidence of factual errors will fortify a finding of bad faith.” 

What do I do if my claim is denied?

In our experience, insurance companies often deny claims as a matter of course. We are hearing from our clients that these claims for property damage from vandalism and looting are being denied.  If this happens to you, reviewing your policy with an attorney can help you determine if pursuing litigation for recompense for your damages or a cause of bad faith is a wise option for you. Ultimately, the impact that any disruptive, damaging event might have on a particular business owner hinges on a number of factors, not the least of which is whether coverage applies under any applicable insurance policy.  In light of the foregoing, affected business owners ought to review their policies and consult with an attorney if necessary to gain an in-depth understanding of the coverage afforded thereunder.  Insurance premiums represent a significant expenditure for most policyholders, and business owners should strive to be well-informed of their rights and the obligations of their insurance carriers in relation to bargained-for insurance coverage.  In the event that policyholders find their coverage inadequate protection from certain causes of loss, it may be prudent to consider renegotiating the terms of their respective policies in order to secure coverage for potentially catastrophic losses such as those currently suffered by business owners all over the country.  Please Note: This document does not constitute legal advice. Please consult an attorney for legal advice on what to do in a particular situation.

See, e.g., Gruenberg v. Aetna Ins. Co. (1973) 9 C3d 566, 573, 108 CR 480, 485; California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 CA3d 1, 54, 221 CR 171, 200; Chateau Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co. (2001) 90 CA4th 335, 346, 108 CR2d 776, 783

See, Egan v. Mutual of Omaha Ins. Co. (1979) 24 C3d 809, 819, 169 CR 691, 695-696 (emphasis added); Agricultural Ins. Co. v. Sup.Ct. (MKDG/Rhodes SC Partnership) (1999) 70 CA4th 385, 402, 82 CR2d 594, 604 (citing text); Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 CA4th 847, 879, 93 CR2d 364, 386

Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 CA4th 847, 880, 93 CR2d 364, 387 (emphasis added).  

Please Note: This document does not constitute legal advice. Please consult an attorney for legal advice on what to do in a particular situation.