The economic consequences of the COVID-19 pandemic on businesses have been dire, to say the least. With many businesses being forced to close either due to government shutdown orders or simply due to a lack of customer base in light of quarantines, the effects can be long-term and detrimental to businesses that simply cannot afford to shut their doors.
During these difficult times, many business owners are finding that their insurance carriers are not covering claims for these interruptions. Although business interruption insurance typically covers losses resulting from disaster-related damage, i.e., fires, theft, etc., many carriers are denying claims related to COVID-19. Some businesses have filed lawsuits against their carriers, while state legislatures are fighting to mandate certain coverage. Like most questions during such an uncertain time, the issue of business interruption insurance will unfold as we continue to go through this pandemic.
Do Insurance Carriers Cover Business Interruption Claims Due to COVID-19?
As of now, several insurance companies have released statements expressing that coronavirus-related business interruption claims are not covered by their policies. The Hartford Insurance, for example, states that: “Most 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.” However, the carrier waivers on an unequivocal denial of claims, noting that, “Every situation, however, will be evaluated on a case-by-case basis and reviewed based on the underlying facts, policy language, and applicable law.”
Likewise, the insurance carrier, Travelers, takes a similar position, stating that: “Insurance 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.”
The rationale behind such denials of coverage, according to U.S. insurers, is that the cost would cause the “industry to collapse” and that if the exclusion of pandemics is nullified, insurers will decide that “such coverage is not worth the risk and will drop the product.” As Sean Kevelighan, CEO of the Insurance Information Institute, rationalizes, “Pandemics 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.”
Will the States Help?
Numerous 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. Under the proposed New York legislation, insurers would be required to provide business interruption and loss of use coverage to “business interruption during a period of a declared state emergency due to the coronavirus disease 2019 (COVID-19) pandemic.” The bill would apply to policies in force by March 7, 2020, and would cover businesses with fewer than 100 full-time employees.
Lawsuits Against Insurance Carriers
Unsurprisingly, some businesses have turned to the courts for relief. Hartford currently is facing a lawsuit filed by famed chef, Thomas Keller, owner of a restaurant group that includes well-known spots such as The French Laundry and Per Se. Keller has requested a declaratory judgment from the court which would allow him to recover business losses incurred from the pandemic. Keller was denied coverage for these claims because Hartford stated that there weren’t any dangerous conditions present at the restaurants. However, Keller’s attorney, John Houghtaling, has countered the claim that the virus does not present a danger to restaurants: “This is a lie, it’s untrue factually and legally. The insurance industry is pushing this out to governments and to their agents to deceive policyholders about the coverage they owe.”
Chubb Ltd., another insurance carrier, faces similar lawsuits from restaurants in Florida and New Jersey. In Truhaven Enterprises Inc. d/b/a Fiorino Ristorante v. Chubb Ltd., the New Jersey-based restaurant argues that its policy exclusion for loss or damage caused by a virus or bacteria does not apply because the loss of its use of its property was caused by a compulsory closure, which should constitute a direct physical loss that triggers business interruption coverage.
The Florida case, Cafe International Holding Co. LLC v Chubb Ltd., makes a similar argument, noting that their policy “does not contain any exclusion which would apply to allow Defendants to deny coverage for losses caused by COVID-19 and related actions of civil authorities taken in response to COVID-19.”
Are COVID-19 Business Interruption Insurance Lawsuits “Winnable”?
There is no clear answer yet as to what makes a winning argument in a COVID-19-related business insurance case.
Although, as with any contract, individual insurance policies themselves can provide some clarity. As some businesses have argued, even if there exists a “virus exclusion,” many policies do not address government-forced shutdowns of businesses. The question will then hinge on whether such instances are covered because of the carriers’ failure to specifically exclude it in the policy. As such, at this point in time, any court decision on the subject will likely be precedential.
Overall, one thing is for certain—the future of many businesses will be held in the balance until courts and legislatures act on these critical issues.
Experts who can Assist Business Interruption Cases
For upcoming business interruption cases, property insurance expert witnesses will be essential for interpreting the specifics of policies in question and determining whether the alleged insured perils should trigger business interruption coverage. Forensic accounting experts could also help calculate the quantum of the expenses incurred and income lost as a result of business closures.