Business Interruption Insurance Claims: COVID-19 & Government Shutdown

Throughout the United States, business owners are demanding that their insurance providers cover the business’ losses which have arisen out of the COVID-19 pandemic, and the subsequent government-mandated shutdowns. Their claim? Such financial losses should be covered by the “business interruption” or “civil authority” coverage of their commercial general liability insurance policies.

Much to these business owners’ chagrin, however, many insurance providers are denying these claims. Denials typically take one of the following three forms: (1) pandemics are not covered under business interruption policies or provisions; (2) the pandemic itself did not cause physical damage to the businesses; or (3) the “civil authority” coverage found in many commercial general liability insurance policies, which covers income lost due to a local or state official’s prohibiting access to an insured’s premises due to loss or damage to property, does not included government-mandated shutdowns of business operations.

In response, many business owners have filed lawsuits against their insurance providers, challenging their denied claims for coverage. Federal court filings show that lawsuits have been brought by a variety of business owners across the country, including, but certainly not limited to, owners of restaurants, dental offices, day care centers, and hair salons. Here in Western New York, the owners of Salvatore Hospitality (Salvatore’s Italian Prime, The Delavan Hotel, Garden Place Hotel), Hutch & Associates (Hutch’s Restaurant and Remington Tavern), and Buffalo Xerographix have filed lawsuits to recover unpaid claims.

These lawsuits generally allege that potential COVID-19 contamination constitutes physical damage and/or loss, which is either covered by the policy or is not expressly excluded by the policy. For those claims that have been denied under the policy’s civil authority provision, the lawsuits generally allege that a civil authority ordered the business to cease operations, or dramatically minimize operations, to slow the spread of COVID-19. Civil authority typically refers to a local, county, or state official.

Nationally, business owners, insurance providers, advocacy groups, and state and federal officials have contributed to the discourse on business interruption insurance. The Business Interruption Group, a coalition founded by high-profile chef’s including Wolfgang Puck, was formed to “insist insurers pay owed business losses caused by the coronavirus.” The group, along with partnering hospitality alliance groups, coordinated the one-minute blackout of all billboards in Times Square in New York City on May 27, 2020 to call attention to a nationwide effort to secure insurance coverage during the coronavirus.

In the New York State Assembly, a bill was introduced on March 27, 2020 requiring insurance providers to cover business interruption losses during a state disaster emergency, such as the COVID-19 pandemic, which was declared as such by Governor Cuomo on March 7, 2020. Similar bills are being considered in state capitals across the nation, including in Pennsylvania, Ohio, New Jersey, and Massachusetts.

While insurance providers hold firm in denying most business interruption claims, the National Association of Insurance Commissioners urged Congress not to pass legislation requiring insurer providers to cover COVID-19 business interruption claims under policies that exclude coverage for communicable diseases. Relatedly, the nation’s largest insurance associations and advocacy groups united to propose an alternative solution, called: “The COVID-19 Business and Employee Continuity and Recovery Fund.” The Fund, financed by the federal government and overseen by a special federal administrator, is modeled after the 9/11 Victims Compensation Fund, and would similarly provide a mechanism to distribute immediate relief to eligible businesses. With similar characteristics to the proposed Recovery Fund, Rep. Carolyn Maloney (D-NY), introduced a bill to the House of Representatives on May 26, 2020, to establish a Pandemic Reinsurances Program allowing for the federal government reimbursement of insurance providers that provide coverage for pandemic-related business interruption. 

Several members of Congress signed a letter urging insurance providers to recognize COVID-19-related financial losses as part of their customers’ business interruption coverage. On April 10, 2020, President Trump entered the national dialogue when he supported business interruption coverage under policies that do not specifically exclude pandemic-caused interruption. The President called for fairness to business owners and added that, in many cases, businesses (particularly restaurants) have been paying insurance premiums for decades without ever making a claim for business interruption losses. Now, the President concluded, at a time when business owners finally need it, the insurance companies do not want to “pay up.”

Business owners will undoubtedly pay close attention to the national debate on business interruption insurance and its subsequent coverage (or denial thereof), but they should not wait to take action to protect their business. If you are a business owner facing losses due to COVID-19, consider taking the following steps:

• Review your insurance policies to determine if coverage may be available;
• Collect relevant financial documents;
• Document thoroughly your losses;
• Submit insurance claims promptly;
• Do not be deterred by your insurance carrier from filing a business interruption claim; and
• If your business interruption claim was denied, identify, in detail, your insurance carrier’s rationale for denying you coverage.

If you are a small business owner with business interruption coverage under a commercial general liability insurance policy and would like to discuss your options for pursuing a claim under that policy, please contact Tiveron Law Attorneys at Law at 716-636-7600.

DISCLAIMER: This article has been published as a service to the general public, and, as such, is intended for general purposes only. The information contained within this article should not be considered and/or construed as legal advice. Each reader is advised to consult legal counsel to determine how the contents of this article may apply to their particular facts and circumstances.

For changing and up-to-date legal information, visit our COVID-19 Resource Center.