"COVID-19 Business Interruption Update"

Brett Aaron authored an article for the May 2021 issue of Risk Management providing an update on business insurance claims and court rulings at this stage of the COVID-19 global pandemic.

“In a majority of cases, state courts across the country are finding coverage for policyholders,” Aaron wrote. “Federal courts, on the other hand, have approached business interruption coverage more conservatively and routinely issue opinions finding no coverage.”

These federal courts are finding that the virus and subsequent lockdowns are not “direct physical losses” under business interruption policies. These diverging approaches have led policyholders to file all cases in state courts and, as the Supreme Court declined to address the issue, individual state appellate courts will be left to navigate the coverage questions.

Those businesses that did not purchase business interruption coverage ahead of the pandemic should check if it requested similar coverage from its broker and, if the broker failed to procure insurance protecting against business interruption due to viruses, the business may have a “failure to procure insurance” claim as an option. As COVID-19 is a known risk event now and coverage will not be provided for new claims, some industries may go the way of the construction industry and self-insure against similar interruptions going forward. Further, industry associations may lobby the government to establish protections in the future where the insurance market cannot meet interruption needs.

Going forward, insurers and the Insurance Services Office (ISO) will likely gather to draft new endorsements and exclusions related to viruses to avoid excess litigation and defense costs, which will add to the urgency for businesses and industries to identify new protections from future events like COVID-19.

For the full article, please click here.