COVID-19 Business Interruption Coverage Denial Investigation
The COVID-19 pandemic has left many businesses without income. Some of these business owners may have purchased insurance products intended to cover losses of forced business closure but may be finding their claims initially denied by their insurers.
After the SARS outbreak of 2003-2006, many new policies included specific exclusions that listed the SARS virus or more generically “a virus” as a reason which did not require the policy to cover a forced loss of income or business closure. As most businesses never anticipated a viral pandemic as a reason for business interruption, these exclusions may have gone unnoticed. In other cases, insurance companies did not offer policies without the exclusion so businesses who wanted to purchase interruption coverage were left with no choice.
As COVID-19 has left many businesses in many communities across the U.S. with no income after forced to close by local authorities, the exclusion statements on business interruption insurance policies may be leaving businesses without coverage they had counted on.
Though most insurance companies are in opposition, recent legal action is being taken in a number of states to force insurers to pay for business interruption losses that would otherwise be covered. Business owners may be forced to take legal action themselves to obtain fair reimbursement through a lawsuit or support of other legal actions
States Taking Action on Business Interruption Coverage Denials
A number of states are already looking into the developing problem of insurance coverage denials as businesses which have been forced to close through no action of their own are suffering severe losses.
- New Jersey has proposed NJ Bill A-3844 that would provide a framework for businesses suffering losses due to the COVID-19 emergency. If passed, the bill would retroactively cover businesses with interruption policies back to March 9, 2020 when NJ Governor Phil Murphy declared the state of emergency and public health emergency. The policy requirements would apply to NJ businesses with less than 100 full-time employees.
- Massachusetts may also require insurance companies to cover business losses with the introduction of SD 2888 which would require insurance companies in the state to provide business interruption insurance to policy holders whose businesses have been negatively impacted by COVID-19. The bill closely mimics the New Jersey Law and applies to businesses that employ 150 or fewer full-time workers.
- New York has also joined lawmakers in other states by introducing a bill which would force insurers to retroactively cover business interruption claims due to COVID-19. It would apply to businesses with policies in place on March 7 and limited to businesses with fewer than 100 full-time employees.
- Ohio has introduced HB 589 which would require insurers offering business interruption insurance to cover losses attributable to viruses and pandemics on policies active on March 9 and would apply to policies issued to businesses that are located in the state, with 100 full-time employees or fewer.
Though industry experts have stated that many insurers will not agree to pay claims however lawmakers have said that the bills are designed to use the insurance industry to facilitate government aid and that insurance companies themselves, may be able to seek reimbursement for their losses they are mandated to cover.
Coverages of Business Interruption Insurance
Business Interruption Insurance is not a required product in most areas but is an option that business owners may purchase to ensure income continues in the event of an unforeseeable occurrence that causes an interruption in ongoing business conduct.
Business interruption insurance may cover loss of income and actual damages (property loss or costs) due to:
- Material damage to property resulting in partial or total closure of business but may be limited to fire, flood, other natural disasters.
- Interruption due to pandemic may not fall within definition of property and coverage may depend on wording of the policy
- In some cases, coverage may be contingent on whether a business closure has been ordered due to a “notifiable” disease.
- Damage or loss suffered as a consequence of damage to supplier or customer.
- If closure of upstream suppliers occurs, business lost due to interruption of supply chain may force business interruption
- If downstream customers are lost due to forced closure, business may be interrupted
- Decontamination requirements may be a type of physical damage for costs of goods, services and lost business
- Denial of access when damage in area or other circumstances force a business to close or business is closed based on orders of an authority.
- Event cancellation insurance covers losses arising from cancellation of events such as concerts, conventions, festivals and other events which may have been cancelled due to COVID-19.
- Wording may specify cancellation for specific reasons, general cancellation but may exclude communicable or contagious disease.
Filing a Claim for Business Interruption Losses
Businesses seeking to file claims for business interruption may be denied due to policy exemption wording. Even if a policy claim is pending, businesses may also be forced to prove that the COVID-19 outbreak or government restrictions caused the business interruption loss.
In addition to proposed legislation in New Jersey, New York, Ohio, Pennsylvania, Massachusetts and others, some states have already quashed some legislation and proposed new wordings and the issue is expected to continue to develop as full financial implications of the COVID-19 Pandemic emerge.