Insurer Response to COVID Claims by Businesses

Nearly three months after COVID made its first appearance in the U.S., many businesses remain closed or operating on a limited basis, resulting in disastrous financial implications. One potential strategy to mediate the financial impact for many is business interruption insurance. However, insurance companies are weary of paying out business interruption claims and are quick to reject businesses seeking relief from COVID related financial disruptions. The result is a wave of litigation against insurance companies by businesses whose claims were denied.

Business interruption insurance typically accounts for physical damage to businesses or other events that make operation of the business physically impossible, such as when a storm renders the premises uninhabitable. Under this interpretation, favored by insurance companies, forced closure by government regulations is outside the scope of the policy and the claim is therefore rejected. With few options, business owners are turning to the court system claiming a breach of contract by the insurance companies. Some businesses are even alleging bad faith on the part of the insurer, meaning that punitive damages become a real possibility if the court finds in favor of the business.

Considering the far-reaching impact of COVID across entire industries, litigation against insurance companies for the denial of claims will likely to continue to rise. There have already been more than a hundred such lawsuits filed in federal courts since the start of the outbreak in the U.S. With many businesses backed into a corner, their insurance policy is the last layer of protection until the pressures of COVID fade and business can resume its pre-COVID pace.

Because of the widespread nature of the issue, class actions are one potential manner in which businesses may respond to denial by insurance companies. In New Jersey, for example, several restaurants have already taken that step by filing together against the insurer that denied their claims in the midst of COVID.

The nuances of insurance policies vary depending on the provider and the contract at issue. For questions about your insurance contract, please out to a BrownWinick attorney for a more information.