Looming Contractual Limitations Periods May Impact Policyholders’ Ability to Seek Business Interruption Insurance Coverage for Coronavirus-Related Losses

By Catherine T. Barnard and Anthony W. Merrill

Despite a massive public relations campaign by insurers and some early decisions against coverage, the pendulum is starting to swing toward coverage for COVID-19 business income losses. Increasing rulings for coverage in litigation, as well as proposed legislation, are providing new avenues for business interruption coverage for policyholders.

Recent decisions out of Ohio, North Carolina, Oklahoma and Washington found coverage for business income losses arising out of COVID-19. In Ohio, the federal district court determined that policy language requiring “direct physical loss of or damage to property” could be read to extend coverage in instances where the policyholder loses the ability to use its premises for its intended purpose.¹ In North Carolina, the superior court found that the ordinary meaning of the phrase “direct physical loss” applies to scenarios where business owners lose the full range of advantages and use of their property.² These types of outcomes across various jurisdictions ease the way for businesses to continue to pursue coverage for coronavirus-related business disruption losses under their commercial property policies. However, the window to obtain this coverage may be closing for some policyholders. Commercial property policies that provide coverage for business interruption insurance often include contractual limitations provisions.

In many cases, these suit limitation provisions include a one-year limitations period in which the policyholder must initiate a coverage lawsuit or risk forfeiting coverage for the claim at issue. Typical policy language states that “no suit for the recovery of any claim will be sustained in any court unless legal action is started within 12 months after inception of the loss.” Policyholders should not assume that just because the claim is being investigated by the insurer, the policyholder is relieved from complying with the limitations period in the policy. Although some states have statutes overriding these limitations requirements in favor of longer limitations periods, many states enforce these contractual limitations provisions in the same way as a statute of limitations. Failure to comply with these contractual limitations may result in a loss of coverage.

The trigger date of the limitations period varies by policy. Policyholders should look closely at the language of their policy to determine whether a suit must be filed one year from the date of loss, the date of the discovery of such loss, or the date of the insurer’s breach or denial. The inception of COVID-19-related losses may depend on the state and business, but generally will begin approximately March 13, 2020, when the United States declared a national emergency in response to COVID-19 and many states issued stay-at-home orders that impacted businesses. Many policyholders will only have until March 2021 to initiate a coverage action or enter into a tolling agreement with their insurer.

Policyholders wishing to preserve their rights with respect to coverage should consider acting quickly to evaluate any contractual limitations in their policies and ensure compliance.