Several business owners, whose operations were closed as a result of the COVID-19 outbreak, anticipated being reimbursed for losses caused by the COVID-19 pandemic through their business interruption insurance coverage. Insurers, however, have rejected these business owners’ business interruption claims on the grounds that COVID-19 is not an insurable event under business interruption policies. More specifically, the insurers have relied upon policy exclusions implemented back in 2006 which specifically carved out losses relating to viruses like COVID-19.
Business interruption insurance is typically additional coverage purchased by business owners. Business interruption insurance is designed to indemnify the insured against losses which arise as a result of the insured’s inability to continue the normal operation and functions of its business or industry. Business interruption coverage is typically triggered in many policies when the policyholder sustains “direct physical loss of or damage to” insured property. Business interruption coverage also affords coverage for business income losses sustained when a governmental authority prohibits or diminishes access to the policyholder’s business premises.
Facing catastrophic losses caused by the COVID-19 pandemic, policy holders, along with state and federal government officials, are challenging insurers’ determinations deeming COVID-19 as an uninsurable event under business interruption policies. For example, members of the United States House of Representatives have asked insurance industry leaders to retroactively recognize financial losses related to the COVID-19 pandemic under commercial business interruption policies. More specifically, Congressmen have noted that “many commercial property insurance policies provide coverage for business income losses sustained when a civil authority prohibits or impairs access to the policyholder’s premises” and argued the COVID-19 stay-at-home orders should be considered as such a civil order under the aforesaid policy language. Insurance industry leaders, however, have rejected these requests under the auspice that “business interruption policies do not, and were not, designed to provide coverage against communicable diseases such as COVID-19.”
Several states have also introduced legislation that would require insurers to cover business interruption losses caused by the COVID-19 outbreak. New York State is amongst the states pursuing such legislation. More particularly, the New York State Assembly, on March 27, 2020, introduced a bill which would mandate retroactive business loss coverage for losses related to the COVID-19 pandemic in connection with policies insuring employers with less than 250 eligible employees. The National Association of Mutual Insurance Companies (“NAMIC”), however, has indicated that it would be opposing such legislation.
Additionally, several businesses across the country have recently filed federal lawsuits against their insurers seeking business insurance coverage after being forced to shutter their businesses by state officials due to the COVID-19 pandemic. More specifically, a New Mexico restaurant and espresso bar commenced a class action against its insurer in the U.S. District Court for the District of New Mexico after the insurer denied its claim for business interruption losses caused by COVID-19. Café Plaza de Mesilla Inc. v. Continental Casualty Co, Index No.: 20-CV-354 (D.N.M. Apr. 20, 2020). Similarly, a Florida restaurant commenced a federal class-action lawsuit against its insurer and the insurer’s parent company claiming that it is owed business interruption coverage for lost business income stemming from the closure of its operations due to COVID-19 and the actions of civil authorities. Café International Holding Co. LLC v. Chubb Ltd., Index No.: 20-CV-21641 (S.D. Fla. April 20, 2020). Finally, a metal fabricator company based out of Philadelphia commenced a declaratory judgment action in the U.S. District Court for the Eastern District of Pennsylvania against its insurer seeking coverage for losses and expenses the company alleges it incurred when it ceased operating due to the COVID-19 pandemic. C.A. Spalding Co. v. Selective Insurance Group Inc, Index No.: 20-CV-1967 (E.D. Pa. Apr. 20, 2020). In response to the company’s claim, the insurer argued that a policy exclusion for loss due to bacteria or virus barred the claim. The metal fabricator, however, maintained that this policy exclusion did not apply to business losses caused by COVID-19 because the pandemic qualified as a natural disaster under the emergency code.
In order to determine whether losses and damages caused by the COVID-19 pandemic are covered by business interruption insurance policies, particular attention must be given to the specific language and terms set forth in said insurance policies including, without limitation, the policy exclusions. As always, John J. Dowd, Esq., of Dreyer Boyajian, LLP, remains available to answer any questions or concerns that you may have relating to any business interruption claims related to the COVID-19 pandemic.