Business Interruption Insurance Coverage Dispute Wages On

April 27, 2020

In a recent Legal Line post, we blogged about how business interruption insurance might be a source of reimbursement for lost revenues caused by COVID-19. We noted that insurance companies were intent on fighting the claims relying on exclusions and non-coverage arguments. As the global pandemic continues, the debate over business interruption coverage continues, playing out in court and in the legislature.

Celebrity lawyer Mark Geragos, (who represented such famous clients as Michael Jackson and Scott Peterson) recently sued Travelers Casualty Insurance Co. of America for wrongfully denying his firm’s and other business’s claims for businesses interruption coverage resulting from COVID-19. Now, Travelers has gone on offense, seeking declaratory judgment in Federal Court in California that it is has no obligation to cover Geragos’s claimed losses of business income related COVID-19 pandemic. In essence, Traveler’s argues that the Geragos firm made a claim for losses for which they had not purchased insurance – namely revenues caused by California’s stay-at-home orders and court closures. The Complaint also alleges that the policies expressly exclude coverage for viruses like COVID-19, and furthermore the mere presence of COVID-19 in the general population is not a “direct physical loss or damage” to property that is required for there to be coverage. The Complaint states that while “Travelers understands that the COVID-19 Pandemic has affected the public and the vast majority of businesses…in unprecedented ways…these challenging and unfortunate circumstances do not create insurance coverage for losses that fall outside the terms of a policyholder’s insurance contract.” Traveler’s suit provides an important road map for how insurance companies may respond to these claims going forward for any entity seeking to sue their insurance company for denying business interruption coverage as a result of COVID-19.

Lawmakers are also weighing in on whether and when insurance companies should pay out claims for business interruptions caused in COVID-19 scenarios. A bill was recently introduced in the U.S. House seeking the enactment of the Never Again Small Business Protection Act of 2020. The Act would require any insurer offering business interruption coverage to make available optional additional coverage for losses resulting from business interruption resulting from a government order requiring cessation of operations during a national emergency, beginning upon the declaration of the national emergency. The only way insurance companies could properly exclude this type of business interruption insurance coverage would be to obtain a written statement from the insured expressly authorizing such exclusion, or if the business failed to pay any premium charged for such coverage. The Act would also require that the interruption coverage be contingent on the affected business not terminating an employee’s and/or health insurance coverage during the period of the national emergency. In other words, there would be no coverage for a closed business who, during the period of national emergency, involuntarily terminates any employee or terminates the health care insurance coverage, if provided, for any employee.