As businesses of nearly all sizes have been forced to cease or substantially curtail their operations by governmental orders during the COVID-19 pandemic, those businesses - and their landlords - are looking to recover losses under the business interruption provisions of their insurance policies. Traditionally, such business interruption coverage would respond to provide continued cash flow to the insured in the event the insured was unable to continue normal business operations as a result of a necessary business interruption.
Most insurers have, however, denied COVID-19 related business interruption claims, arguing that losses due to viruses such as COVID-19 are either expressly excluded from, or not specifically included in, policy coverage, and that, even if losses due to viruses such as COVID-19 are expressly or impliedly included in policy coverage, business interruption coverage also requires some direct physical loss or damage to the business premises resulting in such losses.
Coverage denial has spawned lawsuits across the country by plaintiffs who’s policies do not specifically exclude losses due to viruses such as COVID-19
Coverage denial has spawned lawsuits across the country by plaintiffs who’s policies do not specifically exclude losses due to viruses such as COVID-19, claiming they purchased business interruption coverage promising to pay for losses due to necessary suspension of business operations, and that insurers must cover all risks of loss except for risks that are expressly and specifically excluded from the policy.
Lawmakers from Capitol Hill to the Beacon Hill have jumped into the COVID-19 business interruption coverage debate, proposing legislation that would effectively force insurance companies to cover COVID-19 related business interruption losses absent, or, in the case of certain proposed legislation, even despite, policy provisions to the contrary.
The first such legislation, pending in New Jersey, would, absent a clear and specific policy exclusion, require insurers to cover business interruption losses due to viruses such as COVID-19, whether those losses arise from direct contact with the virus at the business premises or from closure of the business premises by government mandated shutdown, and whether or not such losses arise from direct physical damage to the business premises.
Legislators in some states, including Massachusetts, have proposed bills which take the debate a significant step further and would require insurers to cover business interruption losses due to COVID-19 imposed shutdowns notwithstanding a specific policy exclusion or a physical damage condition to the contrary – essentially rendering any such exclusion or condition unenforceable.
Opponents of such legislation have been quick to argue that imposing essentially strict liability on insurers for COVID-19 related business interruption losses will lead to even greater levels of litigation and will effectively bankrupt the insurance industry by pushing billions of dollars of risk onto the industry for losses the industry never considered part of the insurance contract. Without adequate reserves or reinsurance coverage to absorb such unanticipated risk, insurers would arguably be unable to satisfy other types of legitimate business and personal losses clearly covered by its policies.
In addition, insurance industry proponents point out that such legislation would effectively re-write insurance policies by invalidating express policy exclusions from, and conditions of, coverage, in violation of both the contracts clause and the takings clause of the United States Constitution.
Where the courts and state legislatures will move the business interruption insurance coverage debate is yet to be seen. However, as so many businesses have suffered, and continue to suffer, extraordinary and in many cases catastrophic losses due to government mandated COVID-19 shutdown, it is critical that such businesses work with their insurance and legal advisors to examine their business insurance policies and to document and file claims for business interruption losses in an accurate and timely manner, thereby preserving any such claim they may have whether by the express terms of their policy or by virtue of judicial or legislative expansion of coverage beyond the express terms of such policy.
The attorneys at Moriarty Troyer & Malloy LLC stand ready to assist our clients with thorough and expert review of their policy coverages and proper claims submission procedures.