“Ladies and Gentlemen, start your engines.”
As shuttered businesses look for avenues of relief from the COVID-19 crisis, they are being told that the business interruption insurance they’ve paid for, often for many years, won’t help. Insurance companies are routinely denying the claims. Many are responding by racing to the courthouse to ask the judge to order the insurance company to honor their claims. Others are racing to the state house, looking for a legislative remedy to the denials. And the insurance companies are running just as fast, asking Congress to step in to fund the claims.
In general, business interruption insurance indemnifies against losses because a business must temporarily cease operations due to a covered event, e.g. a fire that causes a closure for repair. Often, these include some coverage for closure due to bacteria or virus in the building, but exclude closure due to a pandemic. This limitation was added by the insurance companies after the SARS outbreak in 2003. Many policies with business interruption coverage include indemnification for closure on order of civil authority. Most of those policies, though, limit coverage closure due to damage to a nearby structure.
Businesses forced to close due to the COVID-19 pandemic, often by order from state authorities, have turned to their insurance companies to make business interruption claims, only to be rebuffed by the insurers. The insurance companies, relying upon the plain language of the policies, are determining the claims are not covered. Rather than accepting the denials, the businesses are turning to legislators and litigators for relief.
Legislative Proposals
Ohio was the first state to consider relief for small business owners through business interruption insurance, in House Bill 589, “a bill to require insurers offering business interruption insurance to cover losses attributable to viruses and pandemics and declare an emergency.” The bill requires that every insurance that includes loss of use and occupancy and business interruption be construed to cover business interruption “due to global virus transmission or pandemic during the state of emergency.” It is limited to businesses that had a business interruption policy and 100 or fewer eligible employees. The proposed bill creates a special Business Interruption Insurance fund, created through assessments on insurance companies by the Superintendent of Insurance. The bill was introduced on March 24, 2020, and remains pending in the General Assembly.
On the same day, in Massachusetts, an Act Concerning Business Interruption Insurance, SD.2888, was presented by State Senator James B. Eldridge. The proposed bill states any insurance policy that includes the loss of use and occupancy and business interruption is to be construed, “to include among the covered perils under such policy coverage for business interruption directly or indirectly resulting from the global pandemic known as COVID-19 including all mutated forms of the COVID-19 virus.” It specifically bars denial on account of COVID-19 being a virus or lack of physical damage to the property, even if those are specifically excluded losses in the policy. The proposed Massachusetts bill, too, allowed for the State Department of Insurance to make assessments to cover the costs to the insurance companies to pay the claims. The Massachusetts bill applies to insureds with 150 or fewer full-time equivalent employees. The bill was referred to the Joint Committee on Rules.
Three days later, in New York, Bill A10226A, “an act in relation to certain perils be covered under business interruption insurance during the coronavirus disease 2019 pandemic” was also presented. The proposed New York statute, too, nullified exclusions for virus or pandemic in business interruption insurance. It mandates coverage “for any loss of business or business interruption” during the declared emergency. This broader language is not limited to business closure, but also covers losses. And the bill, like the others, allows for a special apportionment and reimbursement by the state insurance department.
Two different bills were proposed in Louisiana, one in the House and one in the Senate. Louisiana House Bill 858 and Senate Bill 477 both require that business interruption insurance policies be construed to include coverage for loss of business or business interruption due to the COVID-19 emergency. The bills apply to employers with fewer than one hundred full-time employees. Unlike the above bills, it does not provide for assessments or reimbursement by the state insurance department.
In Pennsylvania, House Bill 2372 calls for coverage under business interruption policies for losses due to the COVID-19 emergency. It, too, is limited to companies with fewer than 100 employees and allows for special purpose apportionments and reimbursement by the insurance commissioner.
And finally, South Carolina Bill S. 1188 requires coverage for losses due to COVID-19 under business interruption policies. The South Carolina bill has a 150 employee limit and, like most of the other bills, allows for assessments against, and reimbursement to, insurers by the department of insurance.
Insurance Industry’s Response
David A. Sampson, President and CEO of the American Property Casualty Insurance Association, told Insurance Journal that covering COVID-19 losses under business interruption policies could lead to 30 million claims, 10 times the claims ever handled by the industry in a year.
As an alternative to forced application of business interruption insurance, the insurance industry has proposed the COVID-19 Business and Employee Continuity and Recovery Fund. The proposal would be funded by the federal government, rather than an insurer. Under the proposal, the Treasury would contract with insurers, who would be paid to process claims for losses due to COVID-19. Under the industry’s proposal, businesses with 500 or fewer employees would be eligible without any showing of impairment by COVID-19, as well as larger businesses that can show impairment.
Litigation
Many businesses are not waiting for legislative fixes. They are taking their demands to court, instead, asking judges to issue declaratory judgments finding their business loss insurance covers their COVID-19 damages.
In March, the Oceana Grill in New Orleans filed a lawsuit against Lloyd’s of London (as well as the Governor and the state). The lawsuit asked the court to enter declaratory judgment finding that the Lloyd’s policy provides coverage “for any future civil authority shutdowns of restaurants in the New Orleans area.” A similar lawsuit in California, filed by The French Laundry and Bouchon Bistro against their insurers, asked for the same relief. Other lawsuits by restaurants against their insurers have been filed in Illinois, Big Onion Tavern Group, LLC v. Society Insurance Co. and Billy Goat Tavern v. Society Insurance, and in Pennsylvania, River Twice v. Admiral Indemnity Co.
Lawsuits have not been limited to restaurants. In San Antonio, a chain of barbershops sued State Farm for wrongfully denying coverage, and in Houston, a wig store sued Twin City Fire Insurance Company.
In Indiana, the Indiana Repertory Theater (“IRT”) filed a lawsuit with an additional twist. The IRT added its insurance agent to the suit and alleged he negligently failed to advise on the availability of an event cancellation policy. The IRT asked the court to declare that its losses were covered under its business interruption policy and to award damages for the agent’s negligence.
Practical Takeaways
It is not clear if business interruption insurance will offer any relief from the COVID-19 emergency, and if it does, whether the relief will come from courthouses, state houses or the federal government. But it is clear what business need to do now. They should take the following steps in anticipation of proving losses, whether in court or in response to legislative action:
- Review policies to determine whether they include business interruption, civil action or event cancellation coverage;
- Make claims for losses under existing policies;
- Follow through on appeals as required to preserve rights;
- Keep records of losses, including records from prior years to compare revenue against the same months in non-COVID-19 years; and
- Cancel any automatic record destruction to preserve records to assist in litigation.
Businesses considering litigation, or which are not sure about coverage or appeal requirements, should consult with the authors, their regular Hall Render attorney, or counsel of their choice to assist in preserving rights and claims for insurance coverage during the COVID-19 pandemic.
- David Honig at (317) 977-1447 or dhonig@wp.hallrender.com;
- James Willey at (317) 977-1409 or jwilley@wp.hallrender.com; or
- Your regular Hall Render attorney.
Hall Render’s attorneys and professionals continue to maintain the most up-to-date information and resources at our COVID-19 Resource page, through our 24/7 COVID‑19 Hotline at (317) 429-3900 or by contacting your regular Hall Render attorney.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
