Is Business Interruption Coverage a Way to Save Businesses, in Particular Restaurants, from the Devastation Caused by COVID-19?

April 23, 2020

Businesses are trying to find ways to stay afloat during the slow downs and closures caused by COVID-19. Many are appropriately looking to their insurance policies to determine if they might provide coverage. General liability policies typically provide defense and indemnity for claims alleging that the business caused some type of injury to an individual or entity. Employment practices liability policies offer insurance coverage for harassment, discrimination and other common employment related claims. Usually, these types of policies do not include coverage for an economic downturn in business.


But some commercial insurance policies include something called business interruption coverage. Business interruption coverage is generally not a stand-alone policy, but rather an add on to a broader commercial casualty policy. Companies with business interruption insurance may be able to make a claim for reimbursement of lost revenues resulting from COVID-19.


The existence and extent of coverage for business losses caused by a viral pandemic like this one depends on the terms of the particular policy. Many commercial insurance policies have language specifically excluding coverage for revenue loss from a virus or pandemic. After the SARS and Ebola scares, many insurance companies added language excluding coverage related to “cases of viruses and bacteria.” If viral infection or pandemic is listed among the exclusions in the policy, there would be no coverage for lost revenue from COVID-19. Policy language requiring that covered losses suffered must be “caused by direct or physical damage to property” present another challenge for business interruption claims caused by a pandemic.


But there are policies with business interruption coverage that should cover pandemics or viruses. Some policies might specifically list pandemics or viruses as a covered event. In this scenario, an insurance company would have a difficult basis to deny a claim for revenue lost by COVID-19. The more likely scenario is to have an ambiguous policy, not specifically identifying one way or the other whether business loss from a pandemic or virus scenario is included or excluded. Arguably, any such ambiguity provides a basis for a business to make a claim with their insurer for lost revenues experienced from COVID-19.


Given the unprecedented impact of COVID-19, the insurance industry could find itself bankrupt if it had to cover lost revenues from the pandemic. Not surprisingly, insurance companies are resisting business interruption claims. While the denial of some claims would be appropriate if viruses are actually excluded, other businesses will have claims for lost revenues caused by COVID-19 that should be covered. Indeed, some estimate that 30-40% of commercial insurance policies have business interruption coverage for viral pandemics like this one. As a result, businesses and governments are pushing back on insurance companies reflexively denying all claims.


The governor of Massachusetts is looking to the legislature to pass a law requiring insurance companies to provide business interruption coverage for businesses harmed by COVID-19. Bill SD.288, works by requiring insures to pay out up to the monetary limit of each policy of businesses with 150 or fewer employees who suffered losses due to COVID-19, subject to reimbursement by the state of Massachusetts. It is modeled after a similar bill pending in New Jersey. If any statute like this actually passed, there is a good chance that it would be struck down as unconstitutional. At the end of the day, the issue may be one of freedom of contract.


But private entities are taking on the fight as well. Celebrity chef Thomas Keller (and others) have sued the insurer for denying business interruption coverage claims related to COVID-19. There is a group of famous, and well-funded restaurateurs who have organized a litigation support group to go after insurers who refuse to cover coronavirus-related lost revenue claims. This is there website: They are threatening to sue in every state where insurance companies wrongfully deny business interruption claims on policies without a virus exclusion. This group also supports federal subsidies for insurance companies that pay for business interruption losses caused by the coronavirus. POTUS has made off-the-cuff remarks at press briefings expressing his view that the COVID based business interruption claims should be covered. But so far, his administration has taken no official action.


Given the unprecedented impact of the situation, all businesses are well advised to check their insurance policy to assess whether and to what extent they have business interruption coverage for this pandemic. If there exists no virus or pandemic exclusion, businesses should seriously consider making a claim with their insurance company for lost revenues caused by COVID-19. It may be a fight, but it just might be worth it.