Business Interruption Cases In the COVID-19 Climate
Few business owners could have foreseen the impact that coronavirus would have on our lives and the economy. From the loss of consumer confidence to mandatory government shutdowns, the way our county does business rapidly changed overnight. For many businesses, these disruptions were more than they could handle.
That doesn’t mean all business owners were unprepared. In fact, many businesses — large or small — took steps to prepare for this type of catastrophic event by purchasing business interruption insurance. These policies were intended to replace the business’ revenue when events out of the owner’s control led to the suspension of business operations.
For decades, businesses have paid business interruption insurance premiums without ever filing a claim. Unfortunately, the response from insurance companies on claims related to the coronavirus shutdown has been to summarily deny these claims — whether or not the policies specifically covered pandemics. Understandably, these blanket denials have resulted in litigation.
The Economic Impact of the COVID-19 Shutdown
There is little question that the coronavirus outbreak and the subsequent mandatory government shutdown are having a traumatic impact on the economy. It is clear from the staggering number of jobless claims that a large number of businesses are shutting down or temporarily closing. As of mid-May 2020, more than 36.5 million unemployment claims have been filed.
It isn’t hard to understand why. Due to the mandatory closures in most states, many employers are furloughing their employees to allow them to pursue unemployment benefits. The effect on workers is only one symptom of the economic impact, however.
According to the American Property Casualty Insurance Association (APCIA), the financial losses caused by mandatory business closures have had a dramatic impact on small businesses. The APCIA reviewed publicly available data compiled from the Bureau of Labor Statistics, the Insurance Services Office, and other published reports to gauge the economic impact of the shutdowns. Their research indicates the monthly losses for businesses with 100 or fewer employees could reach as high as $431 billion per month.
Light at the End of the Tunnel: Business Interruption Insurance
For many business owners, filing a claim on their business interruption insurance policy seemed like their best bet. Such insurance policies have been available for years, and are designed to cover a company’s loss in income from a shutdown or during the rebuilding process.
This type of insurance is generally added to a company’s property insurance policy. While property insurance can provide some coverage in a disaster, that coverage is limited to physical damage to the building. Business interruption insurance goes well beyond that — it can provide an array of coverages. A successful claim could include recouped lost profits, money for fixed operating expenses, and even funding to set up a temporary location or pay for necessary new training. Some policies are broad enough that they not only cover losses from business closure, but even the closure of a vital supplier.
How Insurance Companies are Approaching COVID-19 Claims
The uniform response to business interruption insurance claims resulting from the coronavirus pandemic and related government shutdowns has been to deny these claims. Insurance carriers have been quick to claim that large-scale events like pandemics are not covered under these policies. While many insurers include language to that effect in their policies, this is not always the case. Be that as it may, insurance companies are not paying out on these claims either way.
The APCIA, which serves as the trade association for home and business insurers, has claimed these policies were never intended to cover a pandemic. They cite their research comparing the total amount of business losses to the annual premiums on these policies. According to the APCIA, the total of coronavirus-related losses is up to 72 times greater than the $6 billion per month in premiums these policies generate. According to their analysis, the total amount of business disruption losses is roughly equal to the total amount of liquidity the major insurance companies hold; however, this statistic is misleading, as much of these losses will not result in business disruption claims.
These statistics mean little to business owners who have paid their premiums for decades, especially those whose policies do not specifically exclude pandemic-related claims. As these denied claims pour in, the inevitable litigation has also begun.
Suing Insurance Companies over Denied Claims
Many business owners who feel their claims were wrongfully denied have initiated legal action against their insurers. These include a diverse set of businesses, from celebrity chef-owned restaurants to Native American casinos.
Many of the lawsuits — including the one filed by chef Thomas Keller — seek benefits from a policy that does not specifically exclude losses tied to a viral pandemic. In fact, the policy specifically offers coverage due to virus-related damages. While this language is uncommon, it is worth noting that even claims on such a robust policy were summarily denied.
In this particular case, the fight boils down to the definition of a dangerous condition to the property. Under these so-called civil authority shutdowns, this policy, in particular, kicks in when the shutdown is related to a dangerous condition on the property. Keller’s legal team argues that a dangerous pandemic applies. Insurance industry representatives have taken a different approach. They counter that these policies are tied to property insurance for a reason, and require physical damage to the building to result in a claim. Alternatively, they have argued that the general threat of a pandemic does not constitute a dangerous condition on the property. In other words, the policy would only be in effect if a business was shut down due to a specific outbreak at their location.
The legal issues are similar in cases where it is unclear if a policy excluded pandemics or not. This circumstance may play out in a lawsuit filed by the Chickasaw Nation against several insurance companies and underwriters. These lawsuits relate to the closure of their casinos due to the outbreak. In their filing, the Chickasaw Nation alleges they are covered by broad business interruption insurance. It is not immediately clear from the filings if their policy excludes pandemics.
Like the lawsuit filed by chef Keller, the Chickasaw Nation lawsuit is also based on claiming that the coronavirus outbreak damaged their property and required a mandatory shutdown. The filing also makes clear that the casinos cannot be used for their intended purpose due to the pandemic.
These are two of the most prominent early lawsuits regarding business interruption claims, but many more will follow. In the coming months, companies of all sizes will likely pursue legal action against their insurance providers after denying their claim.
Virus Exclusion Language
For many of these cases, the outcome could boil down to the language of the policy. The courts have not resolved any of these suits to date, but cases involving policies that do not have specific virus exclusions are likely to have a better chance of success.
This exclusionary language has been a standard part of many business interruption policies since 2003. That year, the SARS outbreak dramatically altered the way insurers approached insurance coverage following a major pandemic.
The existence of these policies does not guarantee a lawsuit will not succeed, however. That is because of the conflicting language within many of the policies. While viruses might be excluded, most business interruption policies have clauses that allow a claim when a state or local government uses its civil authority to bring business to a halt.
Differences in State Laws
The outcome of these cases may also vary dramatically across state lines. Each state treats business disruption policies differently, which can impact carriers’ ultimate responsibility for a claim. In some states, statutory requirements could override policies that attempt to exclude coronavirus-related claims.
Other states are aggressively pursuing a solution to this issue. To date, Massachusetts, Ohio, and New Jersey have floated changes to the law that would require insurance carriers to provide coverage for pandemic-related shutdowns despite exclusionary language in the policies. These proposed bills differ in their approach, but in general, they require coverage even in cases where no physical damage has occurred. Whether or not this type of legislation will survive a court challenge remains to be seen.
Let the Marrone Law Firm, LLC Help
The issues surrounding business interruption insurance and the coronavirus shutdowns are complex. While it is true that most insurers have denied business interruption claims stemming from the pandemic, you should never take that denial at face value. These insurance policies differ significantly, as do the state laws that govern the insurance business.
Our experienced team can review your case and advise you of your legal options. Depending on the language of your insurance policy, you might be entitled to significant compensation for a wrongful denial.
At the Marrone Law Firm, LLC, we understand how a pandemic shutdown can put your business at risk. Call today to discuss your legal options and schedule your initial consultation.
Media Contact for Marrone Law Firm, LLC: Brigette Lutz, firstname.lastname@example.org