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Key Issues in Business Interruption Insurance Coverage During the Pandemic

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Matthew S. Fedor, Paul J. Millenbach and Sydney Steele
Foster Swift Business & Tax Law News E-blast
March 3, 2021

Business Interruption Insurance FormFrom retail stores to restaurants, to almost every other business in between, the COVID-19 pandemic has negatively impacted profitability. States and local governments have issued “shut down” orders over the course of the last 12 months for the purpose of stopping the spread of the virus. Businesses who were forced to comply with such orders, in Michigan and across the country, have suffered significant losses as a result.

In an effort to recoup their losses, many businesses have filed claims with their commercial liability insurers asserting that their losses are covered under the “business interruption” or “civil authority” provisions of their policies.

Insurance companies, by and large, have fought against such claims and denied coverage. Significant litigation has ensued across the country. Results have been mixed, with most cases being resolved in favor of insurance companies. These issues are likely to be litigated in trial and appellate courts for years to come. Billions of dollars are at stake.

In this article, we introduce you to some of the key topics and issues related to business interruption claims stemming from COVID-19. In an upcoming webinar on March 10th for the Foster Swift “2nd Wednesday Morning Break”, we will take a deeper dive into what businesses need to know to evaluate their rights and their coverage options for COVID-19 losses.

What is Business Interruption Coverage?

Business interruption coverage provides a vehicle to recoup costs that often exceed property damage losses caused by a covered risk such as a storm, fire, or natural disaster. It works by protecting against the interruption of the insured's business operations caused by a covered risk.

Coverage is designed to cover business income losses for a limited amount of time while the business gets back on its feet. Coverage typically provides insurance against loss of earnings and other costs, including payroll, rent, insurance premiums, utility bills, and taxes.

How do COVID-19 Claims Fit in?

Similar to traditional risks, like a fire or a storm, a world-wide pandemic also affects a business’s ability to operate for a period of time causing lost income. Although special communicable disease business interruption coverage endorsements exist, few policies issued to insureds outside the hospitality industry expressly cover communicable disease.

For this reason, most policyholders will attempt to fit pandemic-related claims within policy language designed to cover the disruption of a business's productivity after a natural disaster. In some cases, claims are asserted under a policy’s civil authority provision, which applies to income losses resulting when a governmental order to remain closed cuts off access to the insured's property. Civil authority coverage usually applies only while the governmental order is in place, or for a specified period of time.

Key Issues in Coverage Disputes and Litigation

In most disputes, arguments center around two key issues.

First, did COVID-19 cause “direct physical loss” or “direct physical damage” to the business?

Second, does the claim fall within the virus exclusion, which excludes coverage for contamination of a business premises by a virus or bacteria. Virus exclusions are typical in most commercial policies.

Learn the Essential Issues at the Forefront of Business Coverage Disputes

In our upcoming webinar, we will be addressing the key issues businesses need to know in order to review their business coverage policies, assess their rights, and assert claims, as appropriate. We will cover:

  • Important points in interpreting business coverage policies, including how they are analyzed by courts in litigation.
  • The six elements an insured business must establish to bring a successful claim.
  • The ins and outs of virus exclusions.
  • The standards used by courts to assess whether a business has suffered a physical loss.
  • An overview of the court decisions in order to provide perspective on how courts are dealing with business coverage litigation.

The insurance issues that have arisen as a result of the COVID-19 pandemic and the resulting government orders are unprecedented in the modern era. The only thing we can say for certain is that the future of business interruption insurance coverage is unclear.

Please join us for our March 10th webinar as we help you sort through what you need to know to make sure your business has the coverage it needs and to assess your rights under existing policies for any losses suffered during the pandemic.