Business Interruption Insurance Claim Denials
Business interruption insurance is designed to compensate businesses for lost income due to unforeseen disruptions. However, the COVID-19 pandemic introduced unprecedented challenges to this framework. Many businesses, faced with forced closures and reduced operations, turned to their insurance policies, only to be met with claim denials. Insurers primarily justified these denials by arguing that these policies were designed for physical damages, like fires or floods, and not for pandemics. They contended that viruses, including COVID-19, didn't cause the "direct physical loss or damage" typically required for coverage. Additionally, some policies contained explicit exclusions for losses resulting from viruses or bacteria.
The Neumann Law Group boasts a strong history of contesting insurance coverage rejections. In the current climate, an increasing number of businesses are facing significant setbacks, whether directly due to the coronavirus or as a result of government-mandated shutdowns aimed at safeguarding public health. For years, these enterprises have diligently paid premiums to insurance firms, investing in business interruption and civil authority policies or add-ons to shield against potential business halts. Yet, in these critical times when small businesses are in dire need, insurance providers seem to be falling short of offering the requisite support.Business Interruption Coverage and Civil Authority Coverage
Nationwide, almost all insurers offering business interruption coverage or civil authority coverage have denied claims related to COVID-19. The two types of policies are interrelated. Business interruption coverage allows companies to hedge against certain losses when the business suffers physical damage or loss that interferes with its ability to operate. Civil interruption coverage generally allows recovery when a civil authority issues an order closing a business or interfering with normal operations.Steps to Submitting a Business Interruption Insurance Claim
To begin, you should determine if your business holds this type of coverage. If unsure, contact your insurance agent immediately. It's imperative to file your claim promptly, as most policies require you to file within a certain period of time after your loss. Businesses have sought claims for various reasons, including lost income from closures, diminished revenue from known on-site infections, sanitation and employee testing expenses, and other industry-specific claims.
After filing your claim, don't expect an immediate payout. Insurers have been relying on various reasons to decline these claims. A common reason for business interruption insurance claim denials is the stipulation that the disruption must stem from tangible damage. Insurers contend that the presence of viral particles doesn't equate to direct physical damage to the property. They also lean on policy exclusions like losses from market decline, inability to utilize company assets, or setbacks from delays rather than direct interruption.
Given the widespread denials—some insurers are even issuing blanket denials online—numerous businesses are opting for legal action. Courts in California, Texas, Illinois, and Pennsylvania have been receiving lawsuits, each anchored in unique arguments spanning diverse businesses. One notable case involves a claim filed under a "Pandemic Event Endorsement," referencing SARS and related coronavirus strains. The insurer's counterclaim is that COVID-19 doesn't qualify as a SARS-CoV variant.
Beyond policy stipulations, insurance firms claim that paying out a massive number of claims could jeopardize the entire sector's solvency. Although lawmakers in states like New Jersey, New York, Ohio, Louisiana, and Pennsylvania pushed for legislation mandating some COVID-19 coverage, such alterations to established contracts might breach the Contracts Clause of the U.S. Constitution. The result is that relying on upcoming legislation may not be a strategic plan. Instead, it may be best to enlist the help of a contract lawyer and work within the current legal framework in hopes of convincing (or compelling) your insurer to issue payment on your claim.Has Your Insurer Continued to Deny Your COVID-19 Business Interruption Claim?
Given the posture of the insurance industry and the unlikelihood of government intervention, business owners who have experienced business interruption insurance claim denials should turn to their legal counsel to review the specifics of their policy and circumstances. The attorneys at Neumann Law Group have decades of experience challenging insurance denials and stand ready to counsel companies that have been denied business interruption or civil authority insurance claims. To learn more, and to schedule a free consultation today, give the Traverse City business law lawyers at the Neumann Law Group a call at 800-525-6386. You can also connect with us through our online contact form.