Coronavirus Business Interruption Claims Expected to Surge & Face ChallengesMay 11, 2020
Insurance Companies Have Already Started Pushing Back & Denying COVID-19 Business Interruption Claims
The coronavirus hasn’t just crippled public health and the health care system. It’s also slowed or shuttered millions of businesses across the nation—from major brands, like Bloomingdale’s and the Ford Motor Company, to local restaurants, mom-and-pop shops, and more.
That’s raised some important questions about business interruption coverage for coronavirus losses and the insurance industry’s position on these claims.
Will Business Interruption Insurance Cover COVID-19 Losses?
Whether a business’s losses from pandemics or illnesses, like the coronavirus, will be covered can depend on many factors. Some include:
- The type of business interruption coverage that a business has: Business interruption insurance, sometimes referred to as business income insurance, may generally cover the financial losses a company suffers as a result of slowdowns or shutdowns at the property. Alternately, contingent business interruption insurance provides coverage in the event of slowdowns or shutdowns resulting from interruptions affecting suppliers or customers.
- The specific language and terms of the policy: Policies may contain specific exclusions stating that they do not provide coverage for illnesses or pandemics. This is generally the case for policies written in the wake of the SARS epidemic, when several insurers began including pandemic exclusions.
- Situation-specific details: The nature of the losses sustained, as well as other factors, can also affect whether business interruption coverage comes into play for COVID-19 losses.
When policies do not specifically exclude pandemic coverage or the types of financial losses a business has incurred due to the coronavirus, filling a business interruption claim can be an option for companies with this coverage.
The Uphill Battle of Coronavirus Business Interruption Claims
Even if companies have business interruption insurance—and even if their policies do not specifically exclude pandemic coverage—they can still face a fight when it comes to these claims. Here are just some of the reasons why:
- Insurers may argue that COVID-19 hasn’t caused any physical losses or damage: Some insurance companies have used this tactic as the basis to deny coverage. When doing so, they usually contend that coverage doesn’t apply to coronavirus losses because businesses’ physical properties have not been damaged by the virus. This is creating disputes over what constitutes a “physical loss,” with counterarguments being that property contamination by the virus does qualify as a physical loss.
- Insurers may allege material misrepresentations: As another strategy used to deny coronavirus business interruption claims, this involves insurers “finding” that the material facts of the claim have not been accurately represented by the policyholder.
- Insurers may use other tactics to avoid or minimize payouts: From delaying claims to asking for endless supporting documentation, insurance companies may use various other strategies to try to avoid paying COVID-19 claims. They know that these claims are expected to surge in the coming weeks, and they know the costs could be astronomical if they don’t try to push back now and find ways to deny claims.
Lawmakers Urge Insurers to Honor Business Interruption Claims
Recognizing policyholders’ uphill battle with insurers—and the fact that business interruption claims can be critical to helping some cover payroll or stay afloat—lawmakers have started to lean on the insurance industry.
In fact, on March 18, 2020, members of Congress issued a letter to four major insurance industry trade groups. As part of this letter, Congress stated:
Insurers are reluctant to cover BI losses in a pandemic, both because of the scale and the extreme correlation of the losses. In response, some legislators are considering actions to shift some economic losses to the insurance industry, particularly with respect to BI [business interruption] losses.
A bipartisan group of 18 House members wrote to four insurance industry trade groups, asking them to make financial losses related to COVID-19 part of their BI coverage retroactively, particularly for small businesses.
In response, the industry representatives said that, although they are working to assist their customers, BI policies do not, and were not designed to, provide coverage against communicable diseases, such as COVID-19. Industry sources suggest that the cost of covering BI claims for small businesses could be $110 billion to $290 billion monthly.
It remains to be seen whether federal and/or state lawmakers will force the insurance company’s hand with these claims by passing new legislation.
Regardless, however, those filing coronavirus business interruption claims can benefit from the help of an experienced lawyer at the Amaro Law Firm. We know how to stand up to insurance companies, protect our clients’ rights, and fight for the financial recoveries our clients deserve. Contact us for a free, confidential, no-obligation consultation.