Business Interruption Claims Due to COVID-19: Businesses Forced to File Coronavirus Lawsuits against Insurance Carriers
Apr 28, 2020
The insurance industry has made it clear to Congress - as well as the general public and their policyholders - that COVID-19 business interruption loss claims will not be honored. Insurers are refusing to pay.
This is forcing businesses in Texas and the rest of the country to file civil lawsuits against insurance companies denying Coronavirus claims based upon business interruption losses including lost income.
WRDB wants to alert fellow attorneys and law firms of this growing crisis and the imminent explosion of injury and bad faith litigation, as well as offering our support and assistance in advocating against this widespread injustice.
Accordingly, we provide the following information:
1. What is Business Interruption Coverage for Coronavirus Damages?
Most businesses in Texas and across the country, no matter their size, have commercial insurance to protect them against losses caused by unexpected calamities. These policies usually include protection against “business interruption,” where an event (say, a hurricane) results in the temporary halt to their business operations.
Business interruption is protection provided within the company’s property & casualty policy, or as a rider to a comprehensive package. There is no need to purchase a separate and independent “business interruption” policy.
Within these commercial policies, lost income due to business interruption may be covered when the business cannot continue its normal business operations because of things like:
- Contamination of the business premises;
- Government order limiting access to the business premises;
- Government order forcing business to cease operations for a certain period of time; and
- Shutdown of its suppliers, distributors, etc.
In each case, the individual insurance policy must be carefully reviewed and contrasted with the particular policyholder’s situation. The Coronavirus Pandemic is causing damage in different ways and this must be taken into account. For instance, some businesses may be harmed and suffer losses because they have clients or employees who have contracted COVID-19, while others may suffer harm because of Stay-at-Home Orders forcing their enterprises to shut their doors after being labelled “non-essential.”
2. Insurance Industry Tells Congress Business Interruption Losses Will Not Be Paid
Last month, eighteen members of Congress signed a joint letter addressed to the country’s insurance industry as a whole via the Chief Executive Officers (CEOs) of (1) the American Property Casualty Insurance Association; the (2) National Association of Mutual Insurance Companies; the (3) Independent Insurance Agents & Brokers of America; and the (4) Council of Insurance Agents and Brokers.
The lawmakers asked our nation’s insurance companies to acknowledge that their policyholders can rely upon the business interruption provisions contained in their commercial insurance policies to cover economic losses their businesses face due to the Coronavirus Pandemic.
Congress asked a specific question. From the press release from U.S. Congressman Joe Cunningham (D-S.C.):
“Business interruption insurance is intended to protect businesses against income losses as a result of disruptions to their operations and recognizing income losses due to COVID-19 will help sustain America’s businesses through these turbulent times, keep their doors open, and retain employees on the payroll,” the lawmakers wrote.
“During times of crisis, we must all work together. We urge you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage. Additionally, we stand ready and willing to work with you to on any future measures that might be necessary to see our country through this trying time.”
Two days later, the insurance companies responded to Congress. They said no. The industry will not recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.
Read the details in an article published by the Insurance Journal on March 20, 2020, entitled “Insurers Reject House Members’ Request to Cover Uninsured COVID Business Losses.”
The insurance industry is not willing to provide business interruption coverage to policyholders that have paid premiums for years, and assumed the very kind of harm that they are experiencing today would be covered by their commercial policy.
If the Coronavirus Pandemic isn’t an unexpected calamity resulting in the interruption of business operations, what is? What’s going on here?
The insurance industry is not hiding its cards under the table. Media coverage includes insurance company representatives and insurance defense counsel delving into policy exclusions for various defenses against payment of COVID-19 business interruption losses.
Already, we are seeing discussions of exclusions barring Coronavirus business losses that include policy language dealing with (1) losses due to virus or bacteria; (2) pollution exclusions; (3) communicable disease exclusions; and (4) the absence of any direct physical damage or loss. Even improper notices are being considered as a defense.
See, e.g, “Coronavirus Raises Insurance Questions But Catastrophe-Tested Insurers Are Prepared,” written by Elizabeth Blosfield and published in the Insurance Journal on February 20, 2020; “Insurance Companies to Small Businesses: Sorry, We Don’t Cover Viruses,” written by Dean Obeidallah and published by the Daily Beast on March 29, 2020; and “Commentary: Does Business Income Insurance Cover Coronavirus Shutdowns?” written by Bill Wilson and published by the Insurance Journal on March 24, 2020.
3. Fighting For Justice after Denial of COVID-19 Business Loss Claim
For many businesses in Texas, as well as in our sister states, there are significant and continuing business interruption losses directly attributable to the Coronavirus Outbreak and resulting Stay-at-Home Orders.
Many of these businesses will file for business interruption coverage under their policies and it is expected their claims will be summarily denied. After all, the insurance industry has already written to Congress that these claims will not be respected by insurers.
Fighting Against This Industry-Wide Injustice
Under the laws of the State of Texas, as well as other state jurisdictions, each of these denials must be individually reviewed. The business’ particular circumstances must be examined and losses must be defined and categorized. Each insurance policy must be carefully considered for its particular language regarding exclusions and other potentially applicable provisions.
- Is there a suit for wrongful denial of the claim based upon breach of contract?
- Is there a suit for wrongful denial based upon intentional, tortious conduct by the insurer, such as a breach of the duty of good faith and fair dealing?
- Should a declaratory judgment be sought?
We live in unprecedented times. An insurer’s position in denying business interruption coverage to a policyholder may be based upon biased assumptions about policy language (if any exclusionary clause exists within the policy at all). How the courts will interpret the insurer’s actions may be very different than what the insurer assumes to be justified.
It’s No Surprise Insurers Do Not Want to Pay COVID-19 Business Interruption Claims
Over the years we have come to know all too well how blatantly the insurance industry pursues profits with an aggressive and myopic dedication to its bottom line. Our law firm has extensive experience in fighting against the attitudes and prejudices of insurance carriers and their defense counsel in a variety of settings, with WRDB having achieved the rare distinction of having four nine-figure jury megaverdicts against major corporate defendants.
WRDB understands that insurers face a huge numbers of claims based upon business interruptions, as well as other losses resulting from the Coronavirus Pandemic. WRDB knows from their past patterns of behavior that these insurance companies will be extremely aggressive and creative as they try and find ways to deny coverage and avoid liability simply to protect themselves monetarily.
The fact that business policyholders may face not only huge financial hits because of the Coronavirus but the potential closing of their business doors will not alter the position of these carriers.
WRDB’s Jeff Wigington explains:
“We’re predicting lawsuits will have to be filed across the country against these insurance carriers in order for justice to prevail for businesses which have been unfairly denied coverage for their COVID-19 business interruption losses. Jurisdiction may be critical in these Coronavirus coverage cases, as some states are known to be historically more insurer-friendly than others.”