Articles

First Round Goes to Insurers in COVID-19 Court Fight

Date: Author:
More than 140 lawsuits have been filed against insurers over claims for business interruptions caused by the COVID-19 pandemic. Photo by Matthew Henry from Burst

An insurer scored a significant win in what is believed to be the first court decision involving a COVID-19-related business interruption claim. 

On July 1, 2020, 30th Circuit Judge Joyce Draganchuk in Ingham County, Michigan, dismissed a lawsuit by the owner of two restaurants in Lansing Michigan, siding with the insurer’s decision to deny a claim for business-interruption coverage because the eateries did not sustain “direct physical loss or damage.”

The decision in Gavrilides Management Company v. Michigan Insurance Co. was previously reported by the National Law Review, among others.  Gavrilides Management sought $650,000 from Michigan Insurance Co. for losses it sustained after Gov. Gretchen Whitmer issued executive orders in March that limited its two restaurants to delivery and take-out orders.

Judge Draganchuck said it is clear from the wording of the insurance policy that only direct physical loss to the properties is covered. She rejected as “simply nonsense” the plaintiff’s claim that the restaurants were damaged “because people were physically restricted from dine-in services.”

“Direct physical loss of or damage to the property has to be something with material existence, something that is tangible, something … that alters the physical integrity of the property. The complaint here does not allege any physical loss of or damage to the property,” the judge said during the July 1 video court session. “The complaint alleges a loss of business due to executive orders shutting down the restaurants for dining … in the restaurant due to the COVID-19 threat, but the complaint also states that, at no time has COVID-19 entered the Soup Spoon or the Bistro through any employee or customer.”

The judge noted that the insurance policy also has a virus and bacteria exclusion, and that loss of access to the premises due to government action is not covered. 

You can watch a recording of the virtual court appearance here.

Testing the Limits of Coverage

Business interruption insurance typically covers the loss of income that a business suffers due to the disaster-related closing of the business and the rebuilding process after a disaster. The COVID-19 pandemic is testing the limits of this coverage and its applicability to unprecedented circumstances.
Countless businesses were forced to close as a result of the COVID-19 pandemic and the ensuing emergency orders. While many businesses have been able to reopen since, often on a limited basis, the losses sustained have been steep and, in many cases, ongoing. 

Several state legislatures, including New York’s, have introduced bills that would require insurers to cover business-interruption losses stemming from COVID-19, even if the policies specifically exclude such coverage. Meanwhile, more than 140 COVID-19-related business interruption cases have been filed in federal courts nationwide, including several filed in U.S. District Court for the Southern District of New York. To read three of the complaints, click on the links below.

Broadway 104, LLC, dba Café Du Soleil, v. Axa Financial, Inc.; XL Insurance America, Inc., No. 1:20-cv-03813, SDNY

Food for Thought Caterers Corp. v. The Hartford Financial Services Group, Inc., and Sentinel Insurance Company, LTD., No. 1:20-cv-03418, SDNY

Gio Pizzeria & Bar Hospitality LLC v. Certain Underwriters at Lloyd’s, London, No. 1:20-cv-03107, SDNY

Advent Valuation Advisors provides a variety of litigation support services, including the assessment of damages from business interruption. For more information on business interruption claims, read our blog posts here and here. If you have any questions, please contact us.

NY May Force Insurers to Pay Business Interruption Claims

Date: Author:
New York is one of several states where legislation has been introduced that would require insurers to pay business interruption claims related to the coronavirus pandemic. Photo by Anastasiia Chepinska on Unsplash

It may be worthwhile to file a claim for coronavirus-related losses under your company’s business interruption insurance policy, even if the policy specifically excludes coverage for losses related to virus outbreaks.

A bill introduced in the New York State Assembly would require policies that include business interruption insurance to cover interruption claims incurred during the state emergency resulting from the coronavirus pandemic. The bill would apply to policies held by businesses with fewer than 250 eligible employees, defined as full-time employees who normally work 25 or more hours per week.

Business interruption insurance typically covers the loss of income that a business suffers due to the disaster-related closing of the business and the rebuilding process after a disaster. Coverage may include lost revenues, rent or utilities, among other things. A contingent business interruption provision generally provides coverage for a loss of income related to a problem experienced by a supplier or vendor.

Thousands of businesses in New York State have been forced to close as a result of the COVID-19 outbreak and the resulting state of emergency, which was declared by Governor Andrew Cuomo on March 7. The state has ordered nonessential businesses to close, and many businesses that continue to operate have been hampered by a combination of supply chain interruptions, staffing issues and plunging demand.

Insurers typically do not provide coverage for closures related to widespread illness. In fact, some insurers began to specifically exclude diseases from policies in response to the SARS outbreak of the early 2000s. The Assembly bill would nullify any policy provisions that allow insurers to deny coverage based on “a virus, bacterium, or other microorganism that causes disease, illness, or physical distress.”

Similar legislation has been introduced in several other states, including New Jersey and Pennsylvania.

Companies with 100 or fewer employees face business continuity losses of $255 billion to $431 billion per month because of the pandemic, according to the American Property Casualty Insurance Association, which opposes bills such as the one introduced in New York.

“Pandemic outbreaks are uninsured because they are uninsurable,” David Sampson, president and CEO of the association, said in a prepared statement. “Any action to fundamentally alter business interruption provisions specifically, or property insurance generally, to retroactively mandate insurance coverage for viruses by voiding those exclusions, would immediately subject insurers to claim payment liability that threatens solvency and the ability to make good on the actual promises made in existing insurance policies.”

New York’s bill was introduced March 27, 2020, and is currently before the Assembly’s Insurance Committee. It would apply to any policies in effect on and after March 7. It calls for any business interruption policies that expire during the period of the declared state emergency to be subject to an automatic renewal at the current premium. It would allow insurers to seek state reimbursement for business interruption payments. The state, in turn, would be permitted to raise funds for these reimbursements through a levy against all insurance companies doing business in the state.

To learn more about the quantification of lost profits, please contact Advent. You can read more about business interruption insurance claims related to COVID-19 here: https://adventvalue.com/are-your-companys-covid-19-losses-covered/

Are Your Company’s COVID-19 Losses Covered?

Date: Author:
Business interruption insurance may provide some relief to owners forced to close their businesses because of the COVID-19 pandemic. Photo by Alexander Kovacs on Unsplash

The restrictions put in place to stop the spread of COVID-19 – such as limiting crowd size, closing restaurants and bars and canceling sporting events – are critically stressing many businesses.

One possible form of relief to this financial crisis is insurance coverage, including business interruption and contingent business interruption coverage. Business interruption insurance (also known as business income insurance) is a type of insurance that covers the loss of income that a business suffers after a disaster.

The loss of income covered may be due to disaster-related closing of the business facility or the rebuilding process after a disaster. Coverage may include lost revenues, rent or utilities, among other things. A contingent business interruption provision generally provides coverage for a loss of income related to a problem experienced by a supplier or vendor.

However, there are likely some hurdles to obtaining coverage based upon disruption from COVID-19. For example, a typical business interruption provision reads:

“We will pay for the actual loss of business income you sustain due to the necessary suspension of your ‘operations’ during the period of ‘restoration.’ The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.” 

A “direct physical loss” has been held to exclude economic losses unaccompanied by a distinct and demonstrable loss of the physical use of the business property. Furthermore, after the SARS epidemic in the early 2000s, insurance companies began to exclude viral outbreaks from typical coverage, though exclusions for losses in connection with viruses may not be ironclad.

Coverage depends on the particular policy, and a policy review may prove useful. Not all insurance policies are identical in the coverage they provide.

You will likely find that more expensive policies often provide better coverage than lower-cost policies. Also, coverage for COVID-19 related losses might be contingent on whether the policy provides business interruption coverage as a basic term of the policy or as an endorsement. An endorsement will often provide broader coverage than the base policy because of the additional premium for the endorsement.

Insurance companies will certainly oppose paying business interruption losses in connection with COVID-19, though with advice from your insurance broker and/or attorney, filing a claim may be a good first step. In addition to filing the claim, Advent believes business owners ought to:

  • Analyze your policy and review the law. Don’t be afraid to consult your company attorney if you have questions. For example, if the policy does not adequately define “physical damage” (which can be required to recover business interruption losses) and that term presents ambiguity in the specific context of your company’s loss, you may be covered. 
  • Make note of virus exclusions. One can imagine this law is undeveloped and there is not clear precedent on coverage. Also, some policies may contain civil authority provisions, which could offer coverage for losses suffered in connection with government-ordered shutdowns.
  • Stay informed regarding legislative developments and any other pertinent changes. Finding every possible basis for recovery under your business’s policy will only enhance any potential recovery.

To learn more about the quantification of lost profits, please contact one of the experienced professionals here at Advent.