Does Business Interruption Insurance Cover COVID-19 Losses?

Authored by Jeffrey R. Schmitt, with assistance from Haley E. Gassel, contributor

Business interruption coverage is like most insurance for small businesses – we pay for it with the hope we never need it. The coverage is intended to protect against revenue lost after a business experiences a covered peril or event which results in a temporary closure. Often this involves a casualty event like a fire or flood, or the inability to operate due to loss of utilities or information systems.

However, businesses across the country have filed claims with their insurers seeking business interruption coverage for COVID-related losses.  This is a theory that, fortunately, most businesses have never had to claim in the past. Some claims have found their way to the courts for determination. The issue often boils down to whether there is physical loss or damage to the policyholder’s business location to trigger business interruption coverage. Some policies include coverage for communicable diseases as well.

While most business interruption coverage lawsuits have not concluded, some recent decisions by federal courts in Missouri have been favorable for businesses seeking coverage. This is due in part to ambiguities in the policies and the lack of prior court decisions involving business interruption claims based on a pandemic. In many ways, these are uncharted waters for the litigants and the courts.

In two recent cases, courts ruled that the lawsuits could proceed against the insurer because the businesses adequately alleged that they suffered a physical loss from the COVID-19 pandemic. These courts denied motions to dismiss filed by the insurance companies early in the litigation. The judge reasoned that the businesses alleged a causal relationship between the physical substance of COVID-19 and their alleged losses.

A judge in another case denied an insurer’s motion to dismiss a business interruption claim by a dental office. The court reasoned that the dental office plausibly alleged that COVID-19 had physically occupied and contaminated their dental clinics and thereby deprived them of their use of those clinics by rendering them unusable. The court also noted that the business’s decision to suspend their clinic operations due to the pandemic and its continuing threat to health and safety did not negate their claim that COVID-19 was the cause of that suspension.

Whether these businesses can now prove a loss that triggers the coverage is yet to be determined, though the courts’ initial rulings were favorable to them.

Not all courts have sided with the business though. One ruled that an insurer was entitled to dismissal of the insured’s claims based on express policy exclusions. There, the insurance policy included a provision excluding coverage for “pollution and contamination,” which the court found to encompass viruses, including COVID-19. The insured has appealed this decision, which remains pending.

As these and other cases proceed through the courts, businesses will have more guidance about the viability of business interruption claims. Many policies require timely claims be filed however, so business owners considering claims should seek advice from their insurance brokers, attorneys, or other advisors sooner rather than later.

Posted by Attorney Jeffrey R. Schmitt and Haley E.Gassel. Schmitt represents businesses and individuals in commercial litigation matters including banking and finance, real estate, condo and homeowners associations, professional liability defense, title disputes, transportation, and pension and retirement plans. Gassel contributed to this post when she was a law clerk with Danna McKitrick.

Published in the September 2021 St. Louis Small Business Monthly.

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