Business Interruption Claims Being Denied During the COVID-19 Pandemic
To say that the COVID-19 pandemic has significantly impacted Philadelphia businesses would be an understatement. Ever since mid-March, when Governor Wolf signed an executive order requiring the closure of schools, government offices and non-essential businesses, many businesses have seen their income completely dry up.
Business owners who purchased business interruption insurance may have initially been optimistic that the insurance company would help them cover the costs associated with their loss of income. However, almost universally, insurance companies have been denying these claims. At MyPhillyLawyer, we represent businesses large and small in insurance disputes, including those involving business interruption claims. With extensive experience and a successful track record, the attorneys at MyPhillyLawyer are prepared to help you and your business navigate the complexities and unknowns regarding business interruption claims in the wake of the COVID-19 pandemic.
What Is Business Interruption Insurance?
Business interruption insurance is a type of business insurance coverage that replaces a business’ lost income in the event of a disaster. The classic example of a business interruption claim is if a there was a fire that required a business temporarily shut down. The business owner could then file a claim with their insurance carrier, seeking to recover the income that they would have earned had the business remained open. Typically, business interruption insurance is not sold as a separate policy, but is included in a comprehensive business insurance policy or as a rider on an existing policy.
While every insurance policy is unique, generally a business interruption insurance policy will cover the following:
- Lost profits: Typically, the lost profits of a business are measured by previous months’ performance.
- Fixed costs: Fixed costs include the operating expenses and other unchanging and unavoidable costs associated with running a business. For example, a business’ rent would be considered a fixed cost that would potentially be recoverable in a business interruption claim.
- Temporary relocation: Occasionally, a business must temporarily relocate in the wake of a disaster. Business interruption insurance may cover costs associated with a temporary location.
- Training costs: Business interruption insurance may cover the costs associated with training employees on newly acquired equipment.
- Payroll expenses: Employees’ wages and other payroll expenses may be recoverable through a business interruption claim.
- Tax liabilities: Even after a major disaster, businesses are still responsible for paying taxes. A business interruption claim can provide business owners the funds to cover their tax liabilities.
- Loan payments: Making monthly loan payments can be difficult or impossible while a business is not bringing in income. A business interruption claim may provide coverage for these payments.
Business interruption insurance is critical for businesses to be able to get by after a disaster such as the COVID-19 pandemic. However, for many business across Pennsylvania, business interruption claims have been denied, leaving business owners wondering why they have been paying insurance premiums.
Why Business Interruption Claims Are Getting Denied
When it comes to determining whether a business interruption claim will be approved, insurance companies will look to the specific language of the policy. Business interruption insurance policies typically provide benefits when there is a direct physical loss of use or damage to property related to a covered loss. Coverage may also be provided if an government act required the closure of the business. Unfortunately, most insurance companies in the Commonwealth of Pennsylvania have been denying business interruption claims based on the fact that, as they see it, there has been no physical loss of use of property or damage to property. Similarly, insurance claims are rejecting claims based on the fact that the government required the closure, again basing the denial on the fact that there was no actual physical damage to any business property. Some policies also contain exclusions in coverage for losses caused by viruses, bacteria or pollution.
Business owners have legitimately argued that the virus contaminating surfaces inside a business results in a direct physical loss of use of their property, insurance companies have not been persuaded.
Lawmaker’s Response to the Business Interruption Insurance Crisis
Generally, insurance companies and the insured are free to come up with the terms of a policy. And as soon as the parties agree and sign the appropriate documents, the insurance policy represents the agreement between the parties. Thus, if there is a dispute, the court will generally look to the insurance policy first. However, lawmakers can pass legislation to clarify or define certain terms in an insurance contract.
In fact, lawmakers across Pennsylvania have taken action in an attempt to help small business through the introduction of several bills that would clarify the situations in which business interruption insurance would cover losses related to COVID-19.
Pennsylvania House Bill 2372:
Pennsylvania House Bill 2372 is a short, four-page bill that would have a drastic effect on businesses and insurers, as it would require insurance companies to cover COVID-19 related losses, despite what the policy states. Specifically, Pennsylvania HB 2372 states:
Notwithstanding any other law, rule or regulation, an insurance policy that insures against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this Commonwealth on March 6, 2020, which is the date of the Proclamation of Disaster Emergency concerning the coronavirus pandemic, shall be construed to include among the covered perils under the insurance policy coverage for business interruption due to global virus transmission or pandemic.
Notably, this coverage would only apply to businesses with fewer than 100 employees.
Pennsylvania Senate Bill 1114 and 1127:
Pennsylvania Senate Bill 1114 was proposed shortly after House Bill 2372, and provides similar relief for business owners; however, it also takes the House Bill one step further. The text of the bill provides:
Notwithstanding any other law, rule or regulation, a policy of insurance insuring against a loss related to property damage, including the loss of use and occupancy and business interruption, shall be construed to include among the covered perils coverage for loss or property damage due to COVID-19 and coverage for loss due to a civil authority order related to the declared disaster emergency and exigencies caused by the COVID-19 disease pandemic.
Not long after SB 1114 was proposed, the State Senate drew up SB 1127. SB 1127 creates several rules of construction when it comes to Pennsylvania business interruption insurance policies. For example, the following are terms that would be defined by the bill:
- Property damage (within a structure): The bill provides that “if a person positively identified as having been infected with COVID-19 has been present” in a building, “that area of business activity shall be deemed to have experienced property damage.”
- Property damage (within a municipality): The bill also explains that “Buildings, offices, retail spaces, structures, plants, facilities, commercial establishments and other areas of business activity … are deemed to have sustained property damage” if they are located in a city where there has been at least one person diagnosed with COVID-19 or the existence of COVID-19 has been documented.
In a way, this is lawmakers’ way of re-writing insurance policies to provide coverage where there may not otherwise have been coverage. Senate Bill 1127 redefines other key terms, as well, although these are the two most stark instances.
While the proposed legislation, if passed, would be greatly beneficial to Pennsylvania business owners, the mere fact that it was deemed necessary by lawmakers shows the general perception that these claims would not otherwise be covered. In this way, should the legislation fail, it would indicated that business owners are in for a fight when it comes to obtaining business interruption insurance benefits.
On the other hand, the Pennsylvania Insurance Commission has issued a statement that sheds a different light on these claims. On May 11, 2020, the Commissioner issued a statement indicating that a business owner’s actions in opening up before they are legally permitted to do so may jeopardize the viability of a business interruption claim. The Commissioner’s statement explained:
It is the duty of every business and resident in Pennsylvania to ensure that they and the public at large are provided with the maximum level of protection afforded by insurance. Any actions that could potentially create coverage gaps are the antitheses of the civil duty required of all residents during these times of emergency.
Thus, taking the Commissioner’s words on their face, it would seem that the default would be that a COVID-19 claim for business interruption may be approved, unless the business fails to comply with the Governor’s reopening requirements.
At the end of the day, the viability of a Philadelphia business interruption claim in the wake of the COVID-19 pandemic remains uncertain, and any business owners who believe that they may have a claim should do everything possible to preserve that claim by following all notice requirements. Business owners should also consider retaining the services of a dedicated Philadelphia business interruption insurance claim attorney for assistance.
Speak with a Knowledgeable Business Insurance Attorney Today
Insurance companies can be notoriously difficult to work with. While Philadelphia business owners may have done everything they thought possible to protect their business from the effect of something such as the COVID-19 pandemic, insurance companies may still deny a claim. The Philly insurance dispute attorneys at MyPhillyLawyer have extensive experience enforcing business owners’ rights under their insurance policies. We have decades of collective experience holding insurance companies to their obligations, and standing up for the rights of businesses as well as individuals who have been injured in all types of personal injury accidents. To learn more, call 215-254-6391 locally or toll-free at 866-907-2231. You can also fill out our online form and an experienced attorney will reach out to you as soon as possible.