As lawyers and commentators have already noted, many business owners will face significant hurdles when it comes to obtaining insurance coverage for business losses related to coronavirus. However, any business owner who has experienced such losses, and especially businesses that have been ordered to close due to the coronavirus, should carefully review their insurance policies for potential insurance coverage. Policyholders have already started filing lawsuits against insurance companies for wrongful denial of coverage for business losses related to the coronavirus.
A Recent Example
For example, on March 27, 2020, a group of fourteen owners of restaurants and movie theaters in the Chicago area that have been forced to cease operations by government-mandated closure orders filed suit against Society Insurance, Inc., in the U.S. District Court for the Northern District of Illinois. See Big Onion and Tavern Group, LLC, et al. v. Society Insurance, Inc., No. 1:20-cv-02005, U.S.D.C., N.D. Ill.
The plaintiffs in the Big Onion case purchased commercial property insurance policies from Society Insurance that included indemnification for losses resulting from occurrences, including the “necessary suspension” of business operations at any insured location caused by a government order during the relevant time period. The policies were “all risk” policies that provided broad coverage for losses caused by any cause, unless the cause was expressly excluded. Importantly, the policies, according to the complaint, did not exclude losses from viruses or pandemics.
In addition to property damage losses, the policies also provided that they would “pay for the actual loss of Business Income” sustained by the plaintiffs, and due to the “necessary suspension” of their operations during the period of business interruption caused by “direct physical loss of or damage to covered property” at the insured’s premises. The policies also included “Civil Authority” coverage, pursuant to which the insurer promised to pay for the loss of business income and extra expense sustained by the plaintiff’s “caused by action of civil authority that prohibits access” to the insured premises.
On March 11, 2020, the World Health Organization declared that the coronavirus threat constituted a global pandemic. Research on the virus, and reports from the CDC, indicate that the COVID-19 strains physically infect, and can stay alive on surfaces, for at least 17 days. Other research indicates that the virus may linger on surfaces for up to 4 weeks in low temperatures.
In response to the pandemic and the spread of the coronavirus in the Chicago area and throughout Illinois, the Governor of Illinois, like many other governors, issued an executive order on March 15, 2020, requiring that all bars, restaurants, and movie theaters close to the public beginning on March 16, 2020. On March 20, 2020, the Illinois Governor issued another executive order closing all “non-essential” businesses in the state. As a result of the closure orders, the plaintiffs suffered substantial income losses and incurred extra expenses, in excess of $10 million. Many of the plaintiffs were forced to furlough their workers, and the plaintiffs alleged that they might have to close some or all of their locations permanently. The plaintiffs each submitted a claim to Society Insurance requesting coverage for their business interruption losses. Society Insurance quickly denied each of the claims.
The plaintiffs filed suit, seeking a declaratory judgment that their claims were covered; that by denying the claims, the insurer had breached the insurance contract; and that the insurer had acted in bad faith in denying the claims, thereby rendering the insurer liable for the plaintiff’s attorney’s fees and costs.
The takeaway from the Big Onion case, and from other cases that have recently been filed against insurance companies, is that, depending upon the type of insurance policies you have, the specific terms of those policies, and the law that applies to the interpretation and application of your policies, you may have coverage (or, at the very least, good arguments in favor of coverage) for your ongoing losses. We would be glad to review your insurance policies, explain the applicable policy provisions to you, and provide you with advice. Please contact Alan Ruley (firstname.lastname@example.org, 336.714.4147) or Allison Parker (email@example.com, 336.714-4168) to arrange a consultation and find out more about our predictable pricing arrangements for this service.