Working closely with local businesses, we have been considering whether business interruption insurance will cover economic losses incurred as a result of the novel coronavirus pandemic. Many businesses are being forced to close either due to government restriction orders or due to a decrease in customers in light of consumers electing to stay home or avoid situations where social distancing may be challenging.
Many business owners are finding that their insurance carriers are not covering claims for business interruption related to COVID-19. Business interruption insurance typically covers losses resulting from disaster-related damage, including, but not limited to fire, theft and hurricanes. Some businesses have filed lawsuits against their carriers, while state legislatures are fighting to require certain coverage. The issue of business interruption insurance should gain more clarity as this pandemic continues. However, with over 100 national lawsuits already filed, hope for clarity any time soon may be asking too much.
Several leading insurance companies in the United States have released statements expressing that coronavirus-related business interruption claims are not covered by their policies. The Hartford, a Fortune 500 company, states that “[m]ost property insurance includes business interruption coverage, which often includes civil authority and dependent property coverage. This is generally designed to cover losses that result from direct physical loss or damage to property caused by hurricanes, fires, wind damage or theft and is not designed to apply in the case of a virus.” Notwithstanding this statement, The Hartford claims that it will consider claims on a case-by-case basis.
Travelers, another leader in the insurance industry, takes a similar position, stating that “[i]nsurance for business interruption can provide coverage when a policyholder suffers a loss of income due to direct physical loss or damage to covered property at its location or another location. It does not cover loss of income due to market conditions, a slowdown of economic activity or a general fear of contamination. Nor does the policy provide coverage for cancellations, suspensions and shutdowns that are implemented to limit the spread of the coronavirus. These are not a result of direct physical loss or damage. Accordingly, business interruption losses resulting from these types of events do not present covered losses under our property coverage forms. Even if there has been direct physical loss or damage to property, your policy contains a number of exclusions that are likely to apply to business interruption losses. The most important exclusion to note is the exclusion for losses resulting from a virus or bacteria, which would include coronavirus.”
According to the majority of professionals working in the insurance industry, if carriers were to cover business interruption losses due to COVID-19, such costs would cause a complete industry collapse. Sean Kevelighan, CEO of the Insurance Information Institute, believes that insurers will decide that “such coverage is not worth the risk and will drop the product.” Mr. Kevelighan added that “[p]andemics are an extraordinary catastrophe that can impact nearly every economy in the world, so it is hard to predict and manage the risk…Pandemic-caused losses are excluded from standard business interruption policies because they impact all businesses, all at the same time.”
As of now, a few states such as Massachusetts, New Jersey, New York, and Ohio, have introduced legislation that would require insurance companies to cover claims for business interruptions due to COVID-19. Some of the proposed legislation would require insurance companies to provide business interruption and loss of use coverage during a period of a declared state emergency due to the 2019 coronavirus pandemic. One particular bill, out of New York, seeks to demand coverage for policies that were in force by March 7, 2020, and would cover businesses with less than 100 full-time employees. That seems to be quite an aggressive approach, one that would be unlikely to pass in Florida and more conservative states.
We may not have to wait very long in order to find out, however, as Chubb Ltd., another prominent insurance carrier, faces a lawsuit from a restaurant in Florida. In the Florida case, Cafe International Holding Co. LLC v Chubb Ltd., the restaurant argues that their policy “does not contain any exclusion which would apply to allow [Chubb Ltd.] to deny coverage for losses caused by COVID-19 and related actions of civil authorities taken in response to COVID-19.”
Having experience with judicial interpretation of insurance policies, winning an argument like the one above has a low chance of success. If a court were to find that a carrier’s failure to specifically exclude a “virus”, “pandemic” or “government shutdown” in an insurance policy is grounds for business interruption coverage, such a ruling would set a significant precedent that would have rippling effects throughout the insurance industry.
We have been considering a different approach to benefit local businesses, one that would focus on the language that is included in the subject policy as opposed to language that does not exist. Specifically, if a policy pays out for business interruption due to property damage, we would argue that the presence of the virus on the property could trigger coverage. For example, the novel coronavirus is so dangerous that governments and governmental agencies are requiring employees to self-quarantine, the property to be sanitized, and other measures to be taken which directly impact the business’s ability to operate uninterrupted. If we can prove that to be the case, we are hopeful that policies with certain language may offer its insureds the relief they so desperately need during these challenging times.
While there is assured uncertainty as to whether current businesses will collect damages from business interruption policies presently in effect, you can be sure that the future of many businesses will hinge upon decisions made by the courts and legislatures on these critical issues.
This article is for general information only and is not intended as and does not constitute legal advice or solicitation of a prospective client. It should not be relied on for legal advice in any particular factual circumstance.