COVID-19 Business Interruption Lawsuits Tend to Favor Insurance Companies
The ongoing COVID-19 pandemic has devastated American businesses big and small – but mostly small. In response to being forced to close their doors or restrict the services they can offer, many companies have filed business interruption insurance claims in hopes of obtaining financial support from their insurers. However, for the most part, the insurance safety net of business interruption policies has fallen through, and a significant portion of all claims and lawsuits are ending in favor of insurance companies. According to a recent article from the Insurance Journal and a review from the University of Pennsylvania Law School, about 80% of coronavirus-related business interruption lawsuits have been dismissed by judges, much to the chagrin of those thousands of plaintiffs.
What is Business Interruption Insurance?
Most business owners are offered business insurance policies that can help provide finances and recoveries after unexpected losses, including those caused by an unplanned and uncontrolled interruption to “business as usual.” Business interruption policies are usually used when something like a natural disaster strikes or looting destroys a storefront. But some of those policies can – or at least, seem to be able to – provide an insurance payout for business interruptions caused by a pandemic. Specifically, many plaintiffs in COVID-related business interruption lawsuits have noted that the insurance policy says it will provide coverage in the event of a government-mandated closure, such as those pertaining to stay-at-home orders that have boarded up shops left and right.
If business interruption insurance policies seem to clearly have the potential to provide losses and financial backing to businesses during the pandemic, then why are the cases being dismissed so regularly?
Virus Waivers & Nonphysical Damage Arguments
After the 2003 SARS outbreak, many business insurance companies added virus waivers or exclusions to their policies, including business interruption policies. Many business owners never noticed the update or never thought it would be relevant because, at the time, the thought of a pandemic shutting down nationwide and global commerce seemed impossible. Yet it is those same virus exclusion clauses that are causing so many insurance companies to prevail in court now.
Except not all of the dismissed cases have involved policies with virus waivers. In a noticeable amount of lawsuits that have ended in favor of the defending insurers, the argument has been made that the intended purpose of business interruption insurance is to support a business after “physical damage or loss” has occurred. No matter how deadly or prevalent the virus might be, it does not physically damage a business or commercial property, it only hurts people. Courts are big on interpreting insurance contracts by the letter or by the drafter’s intent, so such insurance policies have withstood the majority of legal challenges so far. Even famous restaurants and entire baseball teams have floundered in court when trying to pursue business interruption damages, which makes the future look grim for smaller businesses with far fewer resources to manage and argue a lawsuit.
Unpredictability of the Coronavirus Matters
There are still plenty of businesses that are taking legal fights against insurance companies to courtrooms. A relatively newer argument in some coronavirus business interruption insurance lawsuits states that policy exclusions for fungi, bacteria, and viruses are drafted to make those exclusions only when considering predictable or known contaminants. Given that the COVID-19 is a new virus that likely originated internationally, it would be impossible to expect a business to be able to plan for and prevent it from damaging its bottom line. Under this argument, the business interruption coverage should still apply.
The viability of this argument is still being tested, though. Indeed, testing new arguments and legal theories appears to be the only way forward for so many businesses on the brink of bankruptcy in the pandemic.
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