After the initial blow From the COVID-19 pandemic last year, insurance companies were inundated with business interruption claims from customers in need of a lifeline.
Businesses ranging from restaurants to healthcare systems have demanded payment for large revenue losses due to government-mandated shutdowns or, in some cases, the presence of the coronavirus itself. The claims have been largely dismissed by insurers on the grounds that COVID-19 does not directly cause physical damage to property.
Arguing otherwise, the companies filed a lawsuit. According to national data collected by the Carey Law School at the University of Pennsylvania, more than 2,000 business interruption (BI) lawsuits against insurers have been filed since March 2020.
The courts have largely sided with the insurers. Of those more than 2,000 cases, only about 33% went to state or federal first instance courts, with about 40% of cases decided now on appeal. To date, 90% of first instance court decisions between state and federal courts have been in favor of insurers.
This result does not come as a huge shock to industry professionals.
“The wording of the contract is pretty clear: Property damage must be part of the claim, and the courts, for the most part, have seen it pretty clearly,” said Andy Franken, president of the Wisconsin Insurance Alliance. “We are ultimately confident, despite some aberrant courts, that the language of politics will be respected.”
BI insurance is usually added to a property and casualty insurance policy and, therefore, is intended for events such as fires, explosions, and other natural disasters that damage a business’s property and interrupt operations as a result.
The success rate of insurers is even higher for cases involving policies excluding viruses, bacteria and communicable diseases, such as COVID-19. Such exclusions were adopted by the industry following similar coverage disputes that emerged from the 2003 SARS epidemic. Listed in most BI insurance policies today, virus exclusions serve as extra layer of protection against paying a mountain of claims for an event that impacts the masses.
“Some of our analyzes drive (COVID-19) claims into the trillions of dollars,” said Jim Whittle, vice president and legal counsel for the American Property Casualty Insurance Association. âThe entire insurance industry in the United States wouldn’t have the capacity to pay for that, so you’re looking at the bankruptcies of insurers who are also doing other business that we need. “
The issue of virus exclusions is the subject of litigation in an ongoing litigation against a Wisconsin insurance company, Fond du Lac-based Society Insurance, which has been sued by dozens of companies Midwestern hotel companies after widely denying BI insurance claims last year.
The cases were combined in a multi-district litigation in the Northern District Court of Illinois. Judge Edmond Chang selected three plaintiffs: Big Onion Tavern Group LLC of Chicago, Valley Lodge Corp. of Chicago and Rising Dough, Inc. of Madison. Unlike most rulings in other courts, Chang sided with policyholders, denying the company’s insurance claims to dismiss the case earlier this year.
According to court documents, the BI insurance policies in question do not contain specific virus or pandemic exclusions, and the companies argue that this alone, given that the company should or should have known about this best practice industry, implies that the police necessarily encompass business interruption due to viruses and pandemics.
The central question in the case is whether the coronavirus and subsequent government warrants that restricted the use and operation of company properties could be considered a “direct physical loss of property”.
In his February ruling, Chang said a reasonable jury could conclude that “stop orders caused by the pandemic impose a physical limit: restaurants cannot use much of their physical space.” Meanwhile, he ruled that Society Insurance had no coverage under the Police Contamination Provision and Civil Authority Provision, which comes into effect when the government denies access to property. and the area around it.
Other Wisconsin companies that have sued Society Insurance include Badger Crossing Inc. in Cashton, Santino LLC in Menasha, Colectivo Coffee Roasters in Milwaukee, and Swedish restaurant Al Johnson’s in Door County.
From the point of view of the insurance industry, the government is in a much better position to deal with the massive losses resulting from a widespread catastrophe. Franken said insurance companies and other business groups are pushing for changes at the federal level.
âWe have supported the American Rescue Plan Act and the Paycheck Protection Program, but really, there has to be support from the federal government to help small businesses in future pandemics,â he said.
In the future, education remains crucial for the consumer side of insurance. Whittle said insurers would likely adopt a stand-alone document to give to customers when they purchase BI insurance that clearly states the policy does not cover pandemic losses. Plus, it encourages businesses to do their homework.
âBusiness owners need to be proactive and ask questions to get the coverage they need,â Whittle said.