Business Interruption Insurance and COVID-19

September 16, 2020

The idea behind business interruption insurance is to replace business income lost by damage caused by the occurrence of certain events. While these events are usually fires, natural disasters, and the like, there is no doubt that COVID-19 has been a massive global disaster that has affected many businesses here in Pennsylvania and across the nation and world.

For a business loss to be successfully claimed under a standard business interruption policy, there are five conditions that must be met:

  1. The business in issue sustained physical damage;
  2. The physical damage was to property that was insured under the policy;
  3. This physical damage was caused by an event covered under the policy:
  4. This physical damage resulted in a measurable financial loss to the business;
  5. The financial loss to the business occurred during the period it took to restore the damaged property..

So what about COVID-19? With thousands of businesses relying on business interruption insurance, is this a viable option for a disease that is not known to destroy property?

An April piece in the CPA Journal suggests not.

Business interruption insurance does not cover viruses and diseases unless expressly stated in the policy. Even where a policy does have a virus or disease inclusion, it still applies to property lost or damaged by the disease. 

Here is a good example of an inclusion clause quoted in the CPA Journal piece:

We will pay for the following under Communicable Disease Coverage:

Direct Physical loss or damage to Property Insured caused by or resulting from a covered communicable disease event at the premises described in the Declarations. … If the Declarations show you have Business Income with Extra Expense Coverage … we will pay for the actual loss of business income, rental value, or necessary extra expense or expediting expense that you sustain due to the necessary full or partial suspension of operations during the period of restoration. The suspension must be caused by direct physical loss or damage caused by or resulting from a covered communicable disease event at the premises described in the Declarations.

So while it is more than likely that COVID-19 would clear the hurdle set by a policy’s virus or disease clause, practically all business interruption policy claims relating to COVID-19 include no property damage. 

Businesses contemplating legal action against insurers who refuse to pay out business interruption claims for COVID-19 will argue that the spirit of the law here, especially in such exceptional times, should outweigh the letter of said law. This is going to be an uphill battle for these businesses, as insurance companies are armed with a practical as well as a tactical advantage.

The practical advantage is the contract itself. Absent a business interruption insurance policy with a clause that allows for viruses and diseases yet does not make property damage to the business fundamental to the claim (highly unlikely) the business claimant will face a tough road in any court here in Pennsylvania.

The tactical advantage is even more brutal – time. Even where the business claims that the virus caused some property damage, these may be protracted court battles. The end result in more cases than not may end up being dissolution of the business before a court reaches a decision on the applicability of the business interruption insurance policy.

Schedule a Consultation Today to Speak with Our Pittsburgh Business Interruption Lawyers

Contact Goodrich & Geist, P.C. today to schedule a consultation to speak to one of our Pittsburgh business interruption attorneys to learn more about your rights and options and to learn more about how our firm can help protect you and your business.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.