More than 51 percent of small businesses who responded to a survey report they have suffered serious negative impact from COVID-19, according to a study conducted by the U.S. Census Bureau. More than 30 percent of respondents say they expect their businesses will feel the effects of the virus for more than six months.
Aside from the temporary closures that many businesses have endured, as well as decreased business from social distancing and stay-at-home orders, nearly 45 percent of businesses have experienced disruptions in their supply chains.
Since COVID-19 took hold of the country, businesses worldwide are dealing with issues that are unprecedented in their nature and their impact. Many business owners find themselves nervously reviewing their books, adjusting expenses and resources, and some of them permanently closing their doors in response to virus-related disruptions.
In desperate need for financial relief, many owners are turning to their business interruption insurance policies. They have, after all, paid monthly premiums on these policies as a responsible measure for an unforeseen disaster like what they currently face. But most struggling policyholders have been shocked to discover that their insurance providers are denying coverage for COVID-19 claims.
Business Interruption Insurance Policies
The purpose of business interruption coverage is to help a business recover lost revenue and unnecessary expenses incurred when a business is shut down due to a covered loss. With COVID-19, however, insurance companies are denying coverage arguing that a pandemic is not a covered loss or is specifically excluded under the terms of the policy.
The COVID-19 business interruption lawsuits present a variety of legal issues for insurance coverage and exclusion analysis. Some policies cover “all-risks”, meaning all losses are covered unless there is a specific exclusion. The burden is on the insurance company to prove coverage doesn't apply to the situation.
Some business interruption policies restrict covered losses to “direct physical loss or damage” that results in business operations being suspended. Obvious examples include fire, wind, and water damage that makes a business (or a portion thereof) non-useable. The legal question with COVID-19 is whether a virus is a “direct physical loss”, especially if the business itself was the subject of a COVID-19 outbreak or was forced to shut down by a civil authority.
If COVID-19 does satisfy the “direct physical loss” requirement of the policy, the second legal issue is whether COVID-19 is excluded as a covered loss. In 2006, the Insurance Services Office (ISO) introduced an insurance policy exclusion for loss due to viruses or bacteria. This policy language excludes coverage for loss or damage resulting from “any virus or microorganism that induces physical distress, illness, or disease.” The legal question is whether this exclusion prevents recovery for COVID-19. Additionally, many insurance companies did not provide this specific exclusion in their business interruption policies, suggesting the company was including pandemics as part of the coverage.
Our law firm is filing lawsuits on behalf of businesses who were forced to close (temporarily or permanently) because of COVID-19 and who possess business interruption insurance coverage.