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Insurance Coverage Issues in the Time of COVID-19

Posted on May 18th, 2020

When the pandemic struck and shutdowns were ordered by state and local governments, many businesses looked to their insurance to cover financial losses due to business interruption. This is typically extra coverage sought by businesses to cover loss of income due to circumstances outside of their control, such as natural disasters, fire, or flood. Many of these policies cover “all risks,” except for risks that are explicitly excluded.

 

Major insurers have denied many of these claims, pointing to provisions which exclude coverage for business interruption due to “virus.” Some policies also cover business interruption due to “government action,” however, these claims have also largely been denied.

These policies may require that the insured experience direct physical loss to their covered property, such as would be expected in a natural disaster but which is not the case with a pandemic. For these reasons, businesses had to turn to alternative sources to cover their losses and seek income assistance when their businesses were shut down, either in the form of Paycheck Protection Program (PPP) loans, SBA Disaster Loans, or traditional higher interest loans. Some businesses have been forced to resort to bankruptcy protection.

 

In response to these widespread denials by the insurance industry, several class action lawsuits have been filed across the country, challenging denials of coverage. Many of these class actions were initiated by businesses that were shut down early in the pandemic, such as bars, restaurants, and medical/dental offices. These class action lawsuits may take years to work their way through the court system, while the covered businesses have to suffer their losses.

 

Federal and state lawmakers are attempting to pressure insurers into covering COVID-19 related losses – the U.S. House of Representatives has introduced HR 6497, which would void any exclusion in insurance policies that would exclude losses due to the COVID-19 pandemic. Eight states and the District of Columbia have introduced similar legislation – note that Montana has not done so at this time. Some of these bills would remove or redefine the requirement of “physical damage,” some of them would create a source of funding for these claims by collecting pro rata sums from all insurers to cover eligible claims, some would cap eligibility for larger businesses who employ more than 150 full time employees. It would appear that lawmakers are putting insurers on notice that government cannot bear the entire financial burden of covering businesses losses. If insurers don’t step up and cover some of these losses, then government will take steps to mandate coverage. Insurance industry leaders have said that they do not have sufficient capital reserves to cover these claims, and would be forced into bankruptcy if they were required to pay out. How this plays out remains to be seen.

 

Your takeaway: all insurance policies are unique. Read your policy carefully, and file your claim for financial losses due to COVID-19 if there is even a chance at coverage. Most policies require prompt notice of a possible claim. If your claim is denied, you can follow through on appeal procedures. Once this process is exhausted, you can contact your state’s commissioner of insurance if you believe your claim was wrongfully denied. You can also consult with an attorney to review your insurance policy and render a legal opinion on whether your losses are covered, and consider whether to file a court action declaring that your claim should be covered.

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