Property Insurance May Provide Financial Relief from the Impacts of COVID-19
National and local governmental responses to COVID-19 have taken a dramatic financial toll on the economy. As a result, many in the construction industry are asking: “can I seek compensation for delays caused by COVID-19?” Contractually, it depends upon the language of your contract; however, construction companies should also be looking to common insurance policies as a potential source of recovery for lost business income and delay damages, such as commercial property insurance or builder’s risk insurance.
Commercial Property Insurance
Generally, if a construction company owns commercial property, it will carry business owner’s insurance or business property insurance. Such insurance provides coverage for a direct physical loss or damage to Covered Property under the policy caused by or resulting from a Covered Cause of Loss. The Covered Property will usually be the construction company’s corporate offices or any other real property listed in the policy. If a corporate office is shut down due to COVID-19, then COVID-19 may be a Covered Cause of Loss. As with all insurance matters, however, coverage for COVID-19 will depend upon the policy language and its exclusions. For example, after the SARS epidemic, insurance companies began including a specific exclusion for losses due to viruses or bacteria as a result of the numerous claims received. It is important to review your commercial property insurance policy carefully to determine what type of coverage you have and whether that coverage has been limited or excluded.
In addition to the typical covered loss discussed above, most commercial property insurance policies contain Civil Authority coverage. This policy provision states that the insurance company will pay for the actual loss of business income caused by an action of civil authority that prohibits access to the Covered Property. A good example of this issue are the wildfires in California. The wildfires caused widespread damage to property. In an effort to protect the public, the California state and local governments closed certain geographical areas around the wildfires resulting in lost business income. Those governmental orders precipitated many businesses to make claims on their insurance policies. Likewise, with COVID-19, the state of Florida and many Florida counties and cities have issued emergency executive orders in which they require businesses to close because COVID-19 is “creating a dangerous physical condition”, “creating property or business income loss and damage”, “causing property loss and damage”, and “physically causing property damage.” The verbiage used in the state of Florida and local government executive orders could serve as a proper basis to seek coverage under the Civil Authority portion of the policy.
Builder’s Risk Insurance
On most construction projects, a project owner will usually carry, or require the contractor to carry, a builder’s risk policy to insure against the cost to restore a project that is physically damaged during ongoing operations. A builder’s risk policy, however, may also include coverage for the financial impacts of delays to the project caused by a Covered Cause of Loss. Those insured delay costs may include “soft costs” such as extended general conditions or lost profits on projects that are suspended or terminated as a result of COVID-19.
Like in commercial property insurance policies, the project must have been suspended due to a direct physical loss of or damage to project, and that such loss or damage must be caused by or result from a Covered Cause of Loss. An unfortunate example today is a crew becoming sick or ill from COVID-19 on the surface of materials or equipment at the project resulting in a shutdown of the project. Depending upon the language of the policy, such a shutdown could be deemed a Covered Cause of Loss. If the builder’s risk policy provides coverage for delay damages, then a contractor may be able to recover some of its “soft costs” as that term is defined in the policy.
Further, builder’s risk policies will usually contain Civil Authority coverage as well. Thus, where there is a builder’s risk policy with coverage for delay damages, a contractor should pull the executive orders from the state of Florida and any local government where they have ongoing projects to see if the language serve as an additional basis for a covered claim.
In these tough times, it could seem like all hope is lost; however, common insurance policies carried by contractors, or which are carried on construction projects, may actually provide financial relief from the impacts of COVID-19.
Kirwin Norris, P.A., with offices in Orlando and Fort Lauderdale, is a boutique law firm established in 1997 to serve the construction industry. For more information about the firm, please visit their website at www.kirwinnorris.com.
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