Understanding Business Interruption Insurance

Business owners across the country whose operations have been affected by the ongoing coronavirus pandemic and the associated quarantine efforts are pursuing business interruption lawsuits to recover the compensation they are entitled to for coronavirus-related business losses. The defendants in these lawsuits are insurers who are wrongfully denying legitimate claims from business owners who have paid their business interruption premiums for years and are now being denied essential coverage. These insurance companies claim that the government-ordered shutdown stemming from the COVID-19 outbreak falls outside the scope of their policyholders’ business interruption insurance policies. These claim denials are not only improper and unsubstantiated, but they are also threatening the very existence of small businesses in desperate need of help during this unprecedented public health and economic crisis. 

COVID-19 and Business Interruption Claims

The government-ordered shutdown put in place in response to the COVID-19 pandemic forced businesses nationwide to suspend all or part of their operations to comply with the orders. The shutdown, while temporary, had a devastating impact on businesses of all types, from restaurants to retailers to entertainment facilities to fitness centers to real estate and everything in between, and many of these businesses have been forced to sue their insurance carriers for improperly denying their business interruption insurance claims and refusing to cover their coronavirus-related losses. 

What is Business Interruption Insurance?

The purpose of business interruption insurance is to protect policyholders by replacing business revenue and covering business losses resulting from a physical event, such as a theft or fire. This generally includes employee wages, projected unearned profits, operating expenses, loan payments, business taxes, and other expenses. It also typically includes financial losses resulting from the closure of a business due to a civil authority order, which should apply to the government-ordered shutdown that followed the coronavirus outbreak. Unfortunately, it is in the nature of insurance companies to pay out as little as possible for policyholders’ claims and many insurers are claiming that business interruption insurance does not cover business losses related to COVID-19. 

Physical Loss Requirement

One main question at the center of the current business interruption dispute is whether businesses have experienced damage to or a direct physical loss of their property as a result of COVID-19. Many business interruption policies include a physical loss requirement, which may require the business owner to prove that their business experienced a physical loss related to the coronavirus pandemic. Many have not, insurers say, and are therefore not eligible for coverage. However, attorneys contend that affected businesses have, in fact, incurred a physical loss due to exposure to the virus and the resulting loss of use and occupancy, which they maintain should be enough to trigger business interruption coverage. 

Virus Exclusion Clause

Other business owners are being denied coverage because their business interruption insurance policy contains a “virus or disease exclusion” clause. This type of clause was added to many business interruption policies in the wake of the SARS outbreak in 2003, and it specifically prevents policyholders from pursuing coverage for business losses caused by widespread disease or illness, such as a pandemic.

Business Owners Pursuing Business Interruption Lawsuits

The impact of COVID-19 on small businesses is one of the biggest and most important insurance law issues in years. Business owners who acted responsibly by securing business interruption insurance coverage and paying their premiums are now facing mounting costs as a result of their insurance company’s failure to cover losses arising from COVID-19. There are already as many as 1,300 business interruption cases pending nationwide and the outcome of these cases will depend primarily on how the courts choose to interpret the language used in the business interruption policies at issue, which can vary from policy to policy and insurer to insurer. 

As small businesses across the country continue to grapple with the unforeseen economic disruption stemming from the coronavirus pandemic, faced with the daunting prospect of shutdown orders going back into effect, more business interruption lawsuits are expected. If you have filed a business interruption claim in the wake of the COVID-19 crisis and your claim has been unfairly denied, you may qualify for a business interruption lawsuit. Hiring an attorney to review your business interruption claim and your insurer’s refusal to properly pay the claim can help you maximize your chances of recovering your losses.


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