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Are Business Losses Due to COVID-19 Covered Under Business Interruption Insurance?

Many businesses have been forced to close during the pandemic. Restaurants, bars, gyms, and summer camps are just some of the businesses that have recently been seeking insurance coverage for their pandemic-related business interruptions. However, as coverage is typically dependent upon direct physical damage, most of these claims have been thrown out of court. Despite consistent rulings in favor of insurance companies, businesses continue to file claims for interruption and canceled events due to COVID-19.

What is Business Interruption Insurance?

Business interruption insurance replaces lost income that a business suffers after a covered loss. It is typically purchased by companies with a physical location that serves customers and is added on to their property insurance policy. If the business should lose income due to a fire or natural disaster, business interruption insurance can replace any income or business losses. Business interruption insurance does not cover flood or earthquake damage, utilities, broken items, or any undocumented income. Rather, this type of insurance only helps businesses cover operating expenses, such as:

  • Revenue
  • Mortgage, rent, or lease payments
  • Loan payments
  • Taxes
  • Payroll
  • Relocation costs

Although insurance policies differ regarding terms, most include some type of language stating that there must be direct physical damage in order for business interruption claims to be paid out. Therefore, if a hurricane blew away a roof or a fire burned down inventory, business interruption insurance would provide coverage. However, what if there was no physical damage, as is the case with many businesses affected by COVID-19? Business owners seeking legal relief are discovering that when it comes to lost income due to the pandemic, they may be left to their own devices.

What About Pandemic-Related Losses?

A professor at the University of Pennsylvania notes that currently, there are approximately 700 coverage lawsuits brought by businesses seeking coverage for pandemic-related business interruptions. This exceeds the normal number of claims for natural catastrophes by two or three times and is more than the number of case filings for hurricanes Sandy, Irma, and Harvey put together.

So far, this widespread need is not being met; courts in California, Michigan, and the District of Columbia have sided with insurers, leaving businesses without coverage for their losses. This is because most policies require direct physical loss or damage to property for coverage to apply. COVID-19 causes no tangible property damage and therefore does not form the basis of a valid claim.

Insurance companies claim they do not have enough funds to cover all pandemic-related claims and that their policies were not meant to cover losses outside of direct physical damage. However, it remains to be seen whether they will be compelled to do so as policyholders continue to file business interruption claims, attempting to convince the courts to construe ambiguous language in their favor.

Philadelphia Business Litigation Lawyers at Sidkoff, Pincus & Green P.C. Help Business Owners Recover Pandemic-Related Losses

If your business suffered losses due to the pandemic, contact a Philadelphia business litigation lawyer at Sidkoff, Pincus & Green P.C. Our knowledgeable and dedicated attorneys pride themselves on staying abreast of all developments in business law and will fight to obtain the benefits to which you are entitled. Contact us online or call us at 215-574-0600 for an initial consultation. Located in Philadelphia, we serve clients throughout Pennsylvania and New Jersey.