What You Need to Know About COVID-19 & Your Business Interruption Insurance Claim
Businesses throughout Texas are working to remain open as they deal with the loss of revenues because of COVID-19. Some businesses struggled as they had to close because of the pandemic. Businesses that remained open experienced loss of revenue as people stayed home and cut expenses.
The financial crisis caused by the coronavirus has left many businesses near bankruptcy. As owners search for ways to recover from the financial crisis, business interruption claims increase.
What is Business Interruption Insurance Coverage?
Business interruption (BI) insurance coverage helps a business recover when it experiences an interruption in regular business. If the business cannot open because of a covered loss, the insurance company reimburses the business for lost revenue and other expenses.
BI insurance is usually a rider to a business general liability, business owners’ or commercial property policy. The policies are not sold as a stand-alone insurance policy.
However, BI clauses are not standard insurance riders. Business owners must add the optional insurance coverage to another policy and pay an additional premium for coverage.
Business interruption insurance covers losses, including:
- loss of revenue;
- loan payments;
- payroll for employees;
- tax liability;
- mortgage, lease, or rent payments; and,
- relocation costs.
The terms and conditions contained in the policy determine coverage and benefits.
Denial of COVID-19 Business Interruption Claims
Unfortunately, insurance companies are scrambling to find ways to deny BI claims related to COVID-19. A judge in Michigan granted an insurance company’s motion to dismiss on July 1 in a case involving a BI claim.
The business had filed a BI claim based on the civil authority provision of the BI policy. The owner argued that the policy covered the loss because the government had restricted business during the coronavirus shut down. The judge ruled that the provision did not apply because there was no physical loss to the property.
In another legal case, a New York judge denied a preliminary injunction filed by a magazine publisher for a BI claim. The judge allegedly said that the virus “damages lungs,” not printing presses. The case is still pending before the court.
There will likely be additional lawsuits filed with the courts regarding BI claims for coronavirus losses. The outcome of those cases could impact cases heard in Texas.
Civil Authority Clauses in Business Interruption Policies
Many business owners were hoping the civil authority clauses in BI policies would win cases related to BI claims. However, the Michigan ruling hurts those chances.
Under the civil authority clause, the company is entitled to benefits if the government restricts access to or shuts down the business. However, as the Michigan judge pointed out, these clauses often require proof of physical damage to the premises. Without physical damage, the clauses are not applicable.
State and Federal Lawmakers Step Into the Fight
Many state and federal lawmakers argue that insurance companies must pay business interruption claims to help the economy reopen. Some federal lawmakers are attempting to pass legislation that would require insurers to include viral pandemics as a covered incident.
Eighteen House members sent a letter to four major insurance organizations calling on them to cover BI losses because of COVID-19. In response, the organizations made it clear that they did not intend to cover COVID-19 claims. The letter states clearly their position – BI policies do not cover infectious diseases like COVID-19.
Now that business interruption claims have become the subject of a political debate, the outcome of these claims could change. If the federal and state government passes laws requiring insurance companies to pay these claims, businesses may have additional standing to force their insurers to pay loss of revenue and other claims related to COVID-19.
Are These Cases of Insurance Bad Faith?
Business owners are frustrated to discover that after paying their premiums on time for years, their insurance companies refuse to pay their claims.
The Texas Insurance Code requires that insurance companies act in good faith to settle claims. This requirement includes providing a reasonable explanation for the denial of the claim. Some BI policies might exclude coverage for COVID-19 losses, but that must be decided on a case-by-case basis.
Different language in the policy might cover the claim. There could be optional coverage that may apply in a COVID-19 claim, such as event cancelation insurance. Denying coverage without legal cause could result in a bad faith insurance claim.
If you are unsure whether your insurance coverage applies to a COVID-19 loss, talk to an insurance lawyer. A lawyer reviews your insurance contract, analyzes the facts of the cases, and determines whether you might have a valid claim business interruption claim.