Ask the Experts: Business Interruption Insurance |
By: Mark Burzych
Q: I purchased business interruption insurance for my business before the COVID-19 pandemic began. I just received a denial of coverage letter from my insurer. How can that be?
A: First, it is important you filed the claim with your insurer. Although many business interruption insurance policies contained exclusions from coverage for events such as “losses caused by viruses or pandemics,” it is important to discuss with your insurance counsel whether your specific policy language may nevertheless provide coverage. We are aware of several clients who have business interruption coverage that does not have an exclusion for viruses or pandemics, or the clients purchased specific coverage for this event.
It is also important that you filed a claim because there is significant government interest in the topic of business interruption insurance. Legislators in New York, Pennsylvania, New Jersey, Massachusetts, Ohio, Louisiana, and South Carolina have each proposed legislation to require insurers to provide business interruption insurance for claims resulting from government-mandated shutdowns due to COVID-19. There is a bill currently pending in Congress that will do the same at the federal level. The Pandemic Risk Insurance Act of 2020 (“PIRA”) was introduced in Congress and the Federal Pandemic Risk Reinsurance Fund and Program was created. If established, the coverage would retroactively apply to business interruption insurance in place before the COVID-19 pandemic. If passed, the PRIA would provide coverage to insured establishments for COVID-19 claims, and upon renewal of the policy next year, require the insured to affirmatively opt into this coverage and pay an additional premium, much like insurers handle terrorism insurance coverage.
Q: I purchased business interruption insurance for my business before the COVID-19 pandemic began. I just received a denial of coverage letter from my insurer. How can that be?
A: First, it is important you filed the claim with your insurer. Although many business interruption insurance policies contained exclusions from coverage for events such as “losses caused by viruses or pandemics,” it is important to discuss with your insurance counsel whether your specific policy language may nevertheless provide coverage. We are aware of several clients who have business interruption coverage that does not have an exclusion for viruses or pandemics, or the clients purchased specific coverage for this event.
It is also important that you filed a claim because there is significant government interest in the topic of business interruption insurance. Legislators in New York, Pennsylvania, New Jersey, Massachusetts, Ohio, Louisiana, and South Carolina have each proposed legislation to require insurers to provide business interruption insurance for claims resulting from government-mandated shutdowns due to COVID-19. There is a bill currently pending in Congress that will do the same at the federal level. The Pandemic Risk Insurance Act of 2020 (“PIRA”) was introduced in Congress and the Federal Pandemic Risk Reinsurance Fund and Program was created. If established, the coverage would retroactively apply to business interruption insurance in place before the COVID-19 pandemic. If passed, the PRIA would provide coverage to insured establishments for COVID-19 claims, and upon renewal of the policy next year, require the insured to affirmatively opt into this coverage and pay an additional premium, much like insurers handle terrorism insurance coverage.
Finally, across the country, there are hundreds of pending lawsuits where business owners have sued their insurance companies related to the denial of the business interruption coverage for claims related to COVID-19. The hundreds of federal lawsuits are being considered for consolidation under the United States Judicial Panel on Multidistrict Litigation since there are multiple cases relating to the same subject matter filed in multiple jurisdictions. The Multidistrict Panel may consolidate all of the COVID-19 business interruption coverage disputes into one case, which may provide some efficiencies in the processing of the litigation and consistencies in the outcomes of the cases. There are also cases in virtually every state court system litigating the same subject matter.
In short, there is a real possibility that a legal or political solution could be reached regarding business interruption insurance coverage for COVID-19 claims. Stay tuned.
In short, there is a real possibility that a legal or political solution could be reached regarding business interruption insurance coverage for COVID-19 claims. Stay tuned.