Business Interruption Insurance: An Uncertain Path
May 11, 2020
As you have undoubtedly heard, the COVID-19 pandemic caused countless businesses to turn to their insurance companies for assistance, making claims under their policies for business interruption coverage. While every insured’s policy is different, insurance companies are almost universally denying such claims. Business owners are left frustrated and wondering what exactly they have been paying for when it comes to business interruption coverage.
In denying claims, insurance companies argue that business interruption insurance is not meant to cover closures related to COVID-19. Under most policies, business interruption coverage only applies if there has been a direct physical loss of use or damage to property related to a covered loss. While many insureds argue that a virus contaminating the surface of their property is a loss of use, and thus covered, insurance companies have generally rejected such arguments, instead requiring direct physical damage. Moreover, many policies contain exclusions for viruses, pollution, and bacteria, yet another means to deny coverage. While coverage for acts of civil authority may give an insured some hope of coverage, that coverage is typically limited to when the civil authority closed down a business because of the physical damage to the insured’s or nearby property.
But, like so many other things in law and life, these issues are open to interpretation. To that end, numerous lawsuits were filed to try to obtain coverage. While most of the lawsuits are recent, and litigation can take years to meander through the system, several litigants are pushing to get decisions from the courts sooner rather than later. Most recently, a restaurateur in Pittsburgh sued Erie Insurance Exchange relative to Erie’s denial of business interruption coverage. Thereafter, the restaurateur petitioned the Pennsylvania Supreme Court to use its Kings Bench powers to consolidate all of the business interruption cases with a single Common Pleas Court, urging the assigning of multiple judges to the matters so they are decided swiftly. The insured argued that these are matters of extraordinary public importance, and swift intervention is needed. Notably, there was no request that the Pennsylvania Supreme Court itself take on the administration of these cases. In another arena, litigants are asking the federal courts to consolidate multiple cases and invoking the multi-district litigation protocols. Making things even more complicated, there is pending legislation that could require insurance companies to cover these claims.
Right now, there is no definitive answer as to how the courts will rule on these matters, but there is no question that insureds should be prepared. Certainly, insureds should comply with all notice requirements in their policy so that, if the insurance company accepts coverage or is so ordered by a court, the claims are not denied due to tardy notice.
McNees’ Insurance Group stands ready to assist clients in reviewing policies for business interruption coverage issues, providing notice to insurance companies, counseling insureds on how to respond to the insurance company’s request for information, reviewing denial letters or reservation of rights letters, and even pursuing an insured’s rights in court.
© 2020 McNees Wallace & Nurick LLC
McNees Insurance Law Update is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.