In part 1 of this two-part series, we covered the basics of business interruption insurance, also known as business income insurance. This article will focus on the intersection of business interruption insurance and COVID-19.
Does business interruption insurance cover losses from COVID-19?
Many insurance companies are denying business interruption insurance claims related to COVID-19. Even insurers that offer expensive “all risk” policies that cover “entirely unknown and novel risks that may arise which were not previously considered by the company” are rejecting claims.
The basis of the denials stems from the concept that the policy only covers lost revenue due to “physical loss, damage, or destruction.” However, claimants counter the insurance industry’s assertion that the virus does not cause physical loss and damage is false because coronavirus creates a dangerous property condition.
Additionally, policies that include a civil authority extension, is an argument that government orders that force a business to close or government order closing the insured’s premises or quarantining all or part of the premises and from government suspension of some modes of public transportation. If dependent properties are included in the coverage, such as a supplier’s or customer’s premises, then the coverage applies to the dependent property as well.
Is there legal recourse?
There are some potentially precedent-setting lawsuits regarding business interruption claims.
One of the lawsuits is waged by In-N-Out Burger against Zurich American Insurance Company. In-N-Out Burger asserts that their “all risk” Zurich policy should cover lost income due to California’s order that all restaurant dining rooms close to stem the spread of coronavirus.
A second lawsuit to follow is a class action suit of small businesses against Farmers Insurance. This lawsuit alleges Farmers neglected to provide insureds a fair and thorough investigation of their claims, a right protected under California law, because they denied the business interruption claims the same day the insureds filed the claims. The lawsuit also alleges that the claims denial is part of a larger strategy to dissuade small businesses from pursuing litigation. The insureds involved in this lawsuit had a uniform business owners policy with “an additional coverages” clauses that should cover business losses “due to the necessary suspension of operations during a period of restoration.”
We are here for you.
The Business Interruption Group (BIG) is a coalition of thousands of businesses to insist insurers pay out business interruption claims.