The coronavirus COVID-19 has affected over four million people worldwide, and almost one and a half million people in the United States alone. For the public’s health and welfare, people have been ordered to quarantine at home.

Also, in most states, all non-essential businesses have been ordered to close, affecting millions of business owners across the country.

The Basics of Business Interruption Insurance

To protect their businesses from unexpected losses caused by a perilous event or disaster, such as a hurricane, tornado, fire, theft, or the current pandemic, business owners can purchase business interruption insurance. With this type of coverage, business owners are purchasing an insurance policy that will replace income a business or company loses from shutting down its operations. The purpose of business interruption insurance is to keep a business in operation as if the disruptive event had never occurred.

Typically, business interruption insurance provides coverage for different losses that a business may experience following an unforeseeable, disruptive event. These losses may include some or all of the following:

• Payroll/employee wages;
• Payroll taxes;
• 401 K contributions;
• Operating expenses such as rent, maintenance and repairs, insurance, utility costs, and property taxes;
• Business loan payments;
• Costs related to temporary relocation; and
• Miscellaneous expenses.

In general, the business interruption formula is:

BI = T x Q x V

In this equation, “T” is the number of hours or day a business operation is shut down, “Q” is the quantity of goods sold or produced per unit of time, and “V” is the value of each unit of production, or profit.

However, businesses cannot collect benefits beyond the policy limits that were purchased.

Recent Updates Regarding Business Interruption Insurance Claims

Recently, businesses who have made claims against their business interruption coverage were denied benefits from their insurance company based on policy exclusions. More specifically, the majority of business interruption claims were denied due to a virus exclusion contained in the policy language.

Virus exclusions are written into business interruption policies so that insurance companies can avoid having to make massive payouts caused by an event such as the COVID-19 pandemic.

Small businesses and large corporations have filed Bad Faith claims against their insurance companies for refusing to honor the policy language, and issue payment for business interruption losses. Wide-spread litigation over the insurance companies’ refusal to honor business interruption claims is anticipated.

More recently, several state legislatures have proposed legislation requiring insurance companies to pay for all business interruption losses that are directly or indirectly related to the COVID-19 pandemic, regardless of any exclusions for viruses written into the policy.

Some legislation proposes that the business interruption coverage be funded by an industry assessment to spread the risk among insurance companies who sold the business interruption insurance policies.

Some examples of the recently proposed legislation include the following:

• New Jersey: New Jersey was the first state to propose legislation requiring insurers to pay COVID-19 business interruption claims. New Jersey rationalized that the proposed law is intended to hold harmless business owners who had the foresight to purchase business interruption insurance for losses sustained as a result of the current health emergency.New Jersey’s bill requires every business interruption policy to be construed to cover the perils, including lost income, associated with the “global virus transmission or pandemic,” and “the coronavirus disease 2019 pandemic.” The bill will provide relief for all businesses with less than 100 full-time employees.

• New York: The proposed bill in New York provides that all insurance policies that provide coverage for loss of use and occupancy and business interruption shall be construed to include coverage for business interruption related to the coronavirus disease pandemic.The proposed language also states that any exclusions based on a virus shall be null and void. Losses that began on March 7, 2020, and lasted for the duration of the state of emergency are to be reimbursed. The bill also states that all current business interruption policies shall renew at current premium rates.

• Massachusetts: Similar to New York’s bill, Massachusetts’s bill proposes that business interruption coverage be paid due to “business interruption directly or indirectly resulting from the global pandemic known as COVID-19, including all mutated forms of the COVID-19 virus.”The new law would apply to business interruption policies issued to businesses with 150 or fewer full-time employees, and would run from March 10, 2020, through the duration of the governor’s emergency declaration.

Similar bills are pending in Ohio, Pennsylvania, and Louisiana.

Should My Law Firm Be Marketing for Business Interruption Cases?

Due to the large number of initial denials of business interruption claims, your law firm should be marketing for business interruption cases. Businesses large and small across the country need help in collecting benefits that were wrongfully denied to them.

Also, many law firms have experienced a drop in new cases since the pandemic began. Litigating Bad Faith claims related to the coronavirus pandemic could help create a new revenue stream for many firms who need to bring in new cases during the pandemic.

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