Is Business Interruption Insurance Valid for COVID-19?
Retailers, restaurants, airlines, and other businesses are begging Americans to try and return to some sense of "normal." That is not happening. And with the expiration of most federal financial support, many businesses big and small are entering another period of massive uncertainty.
As a business owner, your strategy may be no more complex than "just trying to hang on." Unfortunately, it appears that another line of defense — business interruption insurance — may not come to the rescue during the pandemic.
Hundreds of Lawsuits Already
More than 1,200 insurance lawsuits related to COVID-19 have already been filed, according to the University of Pennsylvania, which is tracking COVID-19-related insurance lawsuits. Nearly half of those come from the restaurant and bar industry, which is continuing to suffer from a lack of foot traffic.
Business interruption insurance typically covers a loss of business income due to one or more of the following factors:
- Property damage causes a slowing or stopping of operations
- The government prohibits access to your business because of damage or dangerous conditions on the premises
- Property damage to a property not owned by your business but that you depend on causes your operations to stall
Many policies are meant to cover situations such as riots, hurricanes, earthquakes, and other disasters. Most do not include pandemics in covered situations.
Insurers Gaining Upper Hand
So far, insurance companies rely on policies referring to physical damage to property to win the small number of lawsuits that have already gone forward. Judges have outright dismissed 17 out of 23 lawsuits so far.
"The coronavirus does not physically alter the appearance, shape, color, structure, or other material dimension of the property," wrote U.S. District Judge for the Northern District of Illinois Robert Gettleman in dismissing a lawsuit against a dental clinic.
U.S. District Judge for the Southern District of California Cathy Ann Bencivengo argued the same in dismissing a barbershop group's lawsuit. She wrote that the business would have to prove that the government prohibited access to the insurance specifically due to property damage. California's stay-at-home law did not suffice.
The U.S. Judicial Panel on Multidistrict Litigation has also rebuffed efforts to consolidate hundreds of lawsuits against insurers, which could potentially make it easier for business owners to achieve clarity. But insurers argued that different companies writing different policies could not be consolidated into fewer cases.
Do You Have a Shot at a Successful Claim?
For many judges, it seems that customers' fear of contracting the virus (and thus staying home) and government stay-at-home orders are not enough to win an insurance claim for loss of business income. You could argue against a restaurant, for instance, that being allowed to retool for takeout and delivery-only service precludes being able to file a claim.
So far, there is a faint glimmer of hope in Missouri. In a limited ruling issued earlier this month, U.S. District Judge for the Western District of Missouri Stephen Bough gave the green light to three lawsuits.
Bough sided with plaintiffs, who argued that COVID-19 particles were a "physical substance" that physically damaged property, making them unsafe. The plaintiffs in these cases will still have to present convincing evidence that their insurance provider breached their policy in denying the claim, so a successful outcome is not certain.
What these cases prove, however, is that you need a file a claim to get the process started — even if you think your insurance company will deny the claim. From there, you and your lawyer can decide how to proceed.
- Find an Insurance Lawyer for Your Business (FindLaw's Lawyer Directory)
- Small Business COVID-19 Resources Center (Thomson Reuters)
- What to Do If Your Business Insurance Claim is Denied (FindLaw's Learn About the Law)
- Safety Measures Small Businesses Should Keep in Mind When Reopening (FindLaw's Free Enterprise)