Lawyers Analyze Business Interruption Insurance during Coronavirus

The pandemic affects more and more countries, customers, and businesses. As of the end of April, there are more than 3 million confirmed cases and over 200,000 deaths. The number of unemployment claims in the USA topped 26 million. Insurers around the world face unprecedented load as millions of individuals and entities want to get coverage. To avoid insolvency, underwriters try to limit payments, but desperate clients file lawsuits in response.

While technology solutions insurance enterprise can implement are different and useful, they barely can protect from litigations. In this guide, we will try to analyze the argument between businesses and insurers, legally speaking.

Key Insurance Questions & Answers from Lawyers

To fully understand the current insurance ecosystem with all its challenges, we should reveal some core features of business policies. Differences in language lead to many misunderstandings and lawsuits. Further points shed light on the basics, exclusions, and extensions of policies, as well as the rights and obligations of parties. 

How Do Business Interruption Policies Work?

Let's agree on the object initially. Here, we review only business interruption policies that cause significant controversy. According to the name, this insurance covers income lost as a result of a disaster, either due to the related forced closure or due to physical expenses such as rebuilding. Unlike property policies, interruption products cover potentially possible but not earned profits. Seems that coronavirus-related issues should be covered, too. But don't hurry up.

What About Exclusions?

As it often happens in the insurance industry, carriers forecasted such a large-scale problem many years ago. Immediately after the SARS outbreak in 2002-2004, underwriters started changing business interruption policies to mitigate risks of the global pandemic. 

The typical list of exclusions includes two points:

• Pollution exclusion. This traditional rule isn't entirely relevant, but insurers may use it. Put simply, it allows carriers not to pay for damage caused by any pollutant. However, the list of substances doesn't include viruses.

• Viruses and bacteria exclusion. After the SARS outbreak, insurers updated their policies and added more relevant rules. This one directly states that carriers shouldn't cover damage from viruses, bacteria, microorganisms, and caused diseases or illnesses. 

Another major thing to remember about is called the ordinance or law exclusion. The National Law Review states that this rule lets insurers not cover any damage caused by enforcement of or compliance with laws and ordinances. Moreover, it works even if the business wasn't damaged directly. What happens now is often corresponds to this exclusion because many companies were closed by governmental orders!

Are There Any Extensions?

In addition to exclusions, underwriters offer paid extensions for more unique cases. A traditional list includes the next types of coverage:

• Civil authority. 

• Dependent business.

• Infectious disease.

• Off-premises services.

• Protection and preservation of property. 

• Supply chain.

Financial Times cites Huw Evans from the Association of British Insurers, who says that even add-ons that cover infectious diseases may not help with COVID-19-related issues. These extensions were designed to protect from local losses like ones caused by an infected worker in one particular restaurant. But global pandemics are a matter of another scale.

Still, lawyers who protect businesses think that the battle isn't over. Many experts believe that insurers have to provide coverage if they don't have virus exclusions. In the US, even the ordinance or law exclusion isn't the ultimate rule, so government-ordered interruptions may trigger claims, too. Eventually, it all depends on the interpretation of policies by courts. 

Is COVID-19 Causing Direct Damage?

One important thing to analyze relates to direct physical loss or damage statement. It's the basic point that insurers and businesses interpret completely differently. Carriers say that COVID-19 and the related pandemic don't affect companies directly, so there are no legal reasons to ask for coverage. Simultaneously, clients say that there are definitely direct losses.

The problem is that courts consider these cases differently, too. Some of them say that gases like carbon dioxide may cause direct damage. Others say that dust and mold can't do it. Courts even have different holdings related to the same substance, for instance, asbestos. Surely, the result also depends on the local laws of your jurisdiction, lawyers say.

Generally, Texas Lawyer concluded that it remains to be seen whether the coronavirus causes direct damage, according to courts.

Will Insurers Have to Fulfill Claims?

The issue with payments is now a big question for governments and non-governmental regulators. As more and more customers go to court, all parties wait for national or state decisions. Texas Lawyer also reports that lawmakers in New Jersey, New York, Louisiana, Massachusetts, Ohio, Pennsylvania, and South Carolina have already presented bills with extra benefits for businesses. Still, they're focused on small enterprises, mostly. 

Moreover, Donald Trump said that he'd "like to see insurers fulfilling claims if they need to pay". Despite this fact, it's still unclear whether carriers would have to pay at all. Even small decisions face significant resistance from insurers and regulators. We can assume that new precedents will arise, but their results are barely predictable. But litigations will continue as more businesses will suffer from interruption-related damage.

Potential Outcomes for the Industry

Well, the situation should be clearer now. In conclusion, we want to take a look at the possible results of all these arguments. Note that the mentioned predictions aren't 100% guaranteed. Real outcomes will depend on the severity and longevity of the current pandemic, as well as on governmental actions and court decisions. 

The most likely trends are as follows:

• Companies may declare bankruptcy. This relates to businesses at all and insurance firms, in particular. Steven Badger from Zelle LLP thinks that carriers can be destroyed by the combined power of claims and laws that force companies to pay.

• Insurers actively exclude coronavirus coverage from policies. Soon, it will be nearly impossible to find COVID-19 business insurance. In the future, some companies may start offering pandemic protection based on public-private partnerships. 

• Prices are much likely to rise in any case. Regardless of the litigation outcomes, experts from Financial Times think that insurance rates will increase. Total bills can pass $50 billion, according to very rough estimations!

Whether it's unclear how the situation will change, we can say that insurance will evolve. Underwriters will modify rates, edit policy rules, and focus on cost optimization. Eventually, we believe that the world will survive and become stronger.

© 2023 Lawyer Herald All rights reserved. Do not reproduce without permission.
* This is a contributed article and this content does not necessarily represent the views of lawyerherald.com