COVID-19 Business Interruption Insurance Losses: The Cases For and Against Coverage
35 Pages Posted: 27 Jul 2020 Last revised: 22 Aug 2020
Date Written: June 30, 2020
The financial consequences of the government-ordered shutdowns of businesses across America to mitigate the COVID-19 health crisis are enormous. Estimates indicate that small businesses have lost $255 to $431 billion per month and more than 44 million workers have been laid off. When businesses have requested reimbursement of their business interruption losses from their insurers under business interruption policies, their insurers have denied the claims. The insurance industry also has announced that business interruption policies do not cover pandemic losses, so they intend to fight COVID-19 claims “tooth and nail.” More than 450 lawsuits throughout the country already have been brought against insurers, including dozens of class actions. Legislators in several states have proposed legislation that would require insurers to pay business interruption claims regardless of whether the claims are covered by the wording of the policies. In the absence of a government bailout, the losers of this epic insurance battle—either insurers or their insureds’ businesses—will likely face bankruptcy. Thus, the financial consequences of this battle, and its implications for America’s economy, cannot be overstated.
This is the first scholarly Essay to discuss the arguments for and against business interruption policies covering COVID-19 business interruption losses. In doing so, it sets forth the strongest arguments on each side of the fight regarding the meaning of the applicable policy language in the context of the existing caselaw and the purpose of business interruption insurance. It also addresses the insurance industry’s claim that pandemic losses are not covered by business interruption policies because such losses are simply uninsurable. Finally, it discusses the competing public policies that support each side.
Keywords: covid-19, coronavirus, business interruption, insurance, all risk, virus, pollution, exclusion, civil authority, correlated risks, pandemics, public policy
JEL Classification: K12, K13, K23, K35
Suggested Citation: Suggested Citation