As the novel coronavirus pandemic wears on, more business owners are crying out for justice in the face of mounting economic losses. Their insurers are turning a deaf ear.
Business interruption insurance helps a business cover bills and payroll in the event of a disaster that forces the business to temporarily close. But business owners required to close as a result of the COVID-19 threat are finding their insurance claims largely denied.
Due to the volume of these cases, consolidation of all cases against insurers in a multidistrict litigation (MDL), was proposed in late April. To date, consolidation has been proposed in either the Eastern District of Pennsylvania, Northern District of Illinois, Southern District of Florida, Western District of Missouri, Western District of Washington, and Northern District of California.
Business interruption insurance is insurance coverage that replaces business income lost in a disaster. The event could be, for example, a fire or a natural disaster. Business interruption insurance is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.
Not surprisingly, what business interruption insurance does and does not cover has come under particular scrutiny during the COVID-19 outbreak and the business shutdowns and curtailments that resulted. The answer, unfortunately, is that for the most part policy holders will not be covered.
“The standard business interruption policy only applies when the business sustains direct physical loss or damage, such as a fire,” says James Lynch, FCAS MAAA, chief actuary and senior vice president of research and education of the Insurance Information Institute. “Business interruption can also apply when a nearby business sustains direct physical loss or damage and a civil authority like the government closes all businesses as a result.”
Viruses don’t actually break anything. As Michael Menapace, a partner at Wiggin and Dana and professor of insurance law at Quinnipiac University School of Law, told Jeff Dunsavage of the Insurance Information Institute: “The virus…[compared to a fire or broken windows from wind damage], leaves no visible imprint. Left alone, it can’t survive long and, after it has perished, whatever it was attached to is as good as before.”
Even all-risk business interruption insurance has exclusions. And, especially since the SARS outbreak of 2003, those exclusions have tended to include losses from viruses and communicable diseases.
The coverage is directly tied to the policy itself. Therefore, a close review of your business’ insurance policies will need to be completed to understand the position your business is in. Our firm is actively investigating cases against various insurance companies for denial of business interruption coverage during the COVID-19 pandemic. Allow us to help answer any questions you may have.