Carol J. Ott in Legal/Financial on April 2, 2020
To help co-op and condo boards tackle insurance challenges during the coronavirus pandemic, Habitat spoke with Allen Wolff, a shareholder in the law firm Anderson Kill. Here is an edited version of the interview:
Habitat: Co-op and condo boards are beginning to hear that some residents are getting laid off. They anticipate a cash crunch if people are unable to pay their maintenance or common charges. Is there any kind of insurance that’s going to help out?
Wolff: The answer is maybe. It's going to depend on what coverage you have and what the policies provide. Typically, we would like to see if we can characterize these losses as business-income losses that may be covered by your property insurance. Sometimes business-income insurance is a stand-alone policy, but more often it’s nested within the property policy.
Habitat: Is business-income insurance going to help a board during this pandemic?
Wolff: Again, maybe. We have already seen statements by various insurance companies disclaiming the likelihood of any coverage, saying that these policies, as part of a property insurance policy, require physical damage to property before the business would be covered.
So let's give an illustration. If you had a fire and then you had to shut down the property to repair the premises and restore them to operation, then your property coverage would cover the physical damage to the property, and the business-income coverage would cover your lost income during that period when you had to close and repair. The positions taken by the insurance industry right now are indicating that they do not regard the coronavirus crisis as involving physical damage.
Habitat: Even so, should a board file a claim if its income declines?
Wolff: Yes, you want to give notice because most insurance policies say you have to give prompt notice of any loss. So you don't want to delay giving notice. In all likelihood, you’ll get a response from the insurance company disclaiming coverage. But at least then you’re in a more protected position for the coverage. If notice had not been given at all, then the insurance company may be in a better position to state that they don't have any obligation to cover whatsoever because you failed to comply with the notice requirement of the policy.
Habitat: If a building has commercial tenants and the governor orders those stores shut down, resulting in lost rental income, does a board have a stronger case for lost-income insurance coverage?
Wolff: It will increase potential recovery. And you may have enough to say, "Look, I suffered property damage by the presence of the coronavirus or by the decrees of the government barring the assembly of persons. Therefore, I'm suffering damage to my property. That tenant is one of my sources of income." Many policies have what we call CBI – contingent business-interruption coverage – which says that if this tenant on whom I depend for revenue has a problem, that's part of my supply chain. And when that falls out of my supply chain, I'm suffering damage to my property, and therefore I am covered for that.
Habitat: So a prudent board that experiences a cash shortage should take action?
Wolff: They should give notice to their insurance carrier. Physical damage to the property is going to be a very hotly fought issue. The insurance companies can be expected to continue to take the position that the presence of the virus does not constitute property damage that would trigger coverage. Well, to me that's still a big question mark. I think you'd be very hard pressed to get a scientist to tell you that the coronavirus did not cause physical damage or that the coronavirus was not a physical entity. Which is why I'm so strongly advising policy holders that they should not hesitate to give notice to their insurance companies because it may in fact work out to be a covered claim.
The insurance industry is facing such an impact from this pandemic that they are not going to be able to continue to write insurance on the same basis that they did before. That's just the new world we're living in right now.
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