Photo of a sanitization professional hanging a closure sign on the door of a company experiencing business interruption due to COVID-19.

Could Business-Interruption Coverage Apply to COVID-19?

In March of 2020, California entered a state of emergency due to the COVID-19 pandemic. The dangerous virus had an immediate and negative impact on the economy, causing numerous closures among retail stores, restaurants, and other consumer-facing businesses. As a result, business owners were forced to turn to their insurance providers. To recover from their losses, many filed claims under the “business interruption” and “civil authority” provisions of their policies.

So…is it really possible that these business owners will be successful? Can business-interruption coverage apply to COVID-19? In this article, we’re going to explain what makes this such a difficult question to answer and we’ll review some of the most recent court decisions on the matter.

(Disclaimer: Please note that the court decisions described below should not be construed as legal advice. Furthermore, they do not provide any guarantees that a similar case would yield identical results. We are unable to provide personalized claim advice through our blog.)

Legal Questions vs. Policy Questions

For the most part, when you have questions about your insurance, the best place to look for answers is directly within the lines of your policy. However, COVID-related business-interruption claims may be the exception to the rule!

The coronavirus pandemic was entirely unexpected and unpredictable. For that reason, boilerplate policy language might not have specific inclusions or exclusions that would apply to COVID. When something is not explicitly covered or excluded, it creates ambiguity in your coverage. This ambiguity means that many business owners with denied claims will turn to the courts for judgment.

Recent Court Cases for COVID-19 Business-Interruption

Since lockdowns began in the United States, nearly 1500 lawsuits were filed relating to COVID business-interruption coverage. For the most part, insurance providers have fared well. As of February 17th, 2021 – insurance providers had successfully moved for dismissal in 118 of the 184 lawsuits. (If you’re interested in the most up-to-date information about COVID-19 business interruption litigation, you can consult this litigation tracker created by the University of Pennsylvania’s Carey Law School.) 

Among the decided cases, judges frequently cited the lack of physical damage to each business property as justification for claim refusal. This is very clearly illustrated by the case of Henry’s Louisiana Grill. The lawsuit was filed after the restaurant owner’s insurance claim was denied. He argued that the state of Georgia was under a public health emergency, which should qualify as a covered loss. The judge disagreed with this assessment and ruled in favor of the insurance company because there was no specific “physical change that rendered the property unsatisfactory.”

Exceptions & Endorsements

Most litigation has favored insurance providers thus far, but it’s possible that your COVID-19 business-interruption claim might succeed or fail based on the specific endorsements in your policy. To illustrate this point, we’ll review a recent case of business interruption which appeared before the Ohio courts.

The owners of an Italian restaurant filed their lawsuit after they were forced to close their dining room facilities. When the insurance provider filed for dismissal, the judge denied the motion. Instead, she cited an endorsement in the business owner’s policy which included coverage for income lost due to “contagious or infectious disease.”

In the simplest terms, it’s possible that insurance providers will be compelled to honor some lost-income claims from businesses that purchased endorsements for communicable diseases.

Final Thoughts

We hope that this article has helped you understand some of the complexities of business-interruption coverage. If you have recently suffered a loss, do not hesitate to contact us to discuss your claim. Our experts would be happy to review your situation and provide guidance for the claims process.

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