Business Interruption Lawsuits and COVID-19
While many small businesses carry property insurance coverage, which includes a coverage provision for business interruption and profits lost, insurance carriers are largely denying claims for losses related to COVID-19. Carriers are often arguing COVID-19 did not cause physical damage to trigger coverage. However, the definition of physical damage is not always clear, and insureds are arguing loss of ability to use a property constitutes physical damage. Small business owners pay for property insurance to cover losses to their business. Now insurers across the country are denying responsibility to cover these losses.
What is at stake here is enormous, and the American economy will no doubt be impacted by whether carriers are required to cover their insureds for COVID-19 related losses. Business owners are now forced to go to the courts to get determinations on their denied claims.
Business Interruption Statistics
Researchers at Harvard estimated that nearly 110,000 small businesses across the country had decided to shut down permanently between early March and early May, based on data collected in weekly surveys by Alignable, a social media network for small-business owners.
Small businesses account for 44 percent of all U.S. economic activity, according to the Small Business Administration (S.B.A).
Due to the large quantity of COVID-19-related business interruption lawsuits, plaintiffs filed a motion with the Judicial Panel of Multidistrict Litigation to consolidate the cases into multidistrict litigation (MDL) for discovery purposes. This would allow each litigant to have their own separate case but the cases would band together to share resources (such as case costs and efforts) to pursue the defendants who have denied the business interruption insurance claims. However, the JPML denied the request for consolidation.
In August 2020, the JPML denied the request for industry-wide business COVID-19-related business interruption claims by concluding that the differences amongst the insurance providers would overwhelm any common factual questions between the cases in addition to hindering the efficient management of the litigation.
In October 2020, the JPML denied the request for consolidation for specific insurance carrier consolidated litigations including claims against major national insurers Travelers, The Hartford, Cincinnati Insurance and Lloyd’s.
The panel was chaired by Justice Karen K. Caldwell who concluded that centralization of the lawsuits would “not serve the convenience of the parties and witnesses or further the just and efficient conduct of this litigation.”
Although the panel noted that consolidating the cases “presents a close question”, the judges ultimately decided that “efficiency here is best obtained outside the MDL context.” This means that the panel determined that it would be best to allow the various courts where the lawsuits have been filed to decide these questions.
At this time, insureds continue to file lawsuits across the country to recover insurance coverage for their business losses. Courts have begun to issue orders on the matter, with some denying coverage and others finding that the definition of physical damage is ambiguous enough to warrant further litigation to determine to mean. At least a few courts have determined loss of use of the property constitutes physical damage to trigger insurance coverage under the policy.
These claims will continue to be litigated for some time, and the law will develop further as courts continue to issue orders. We are hopeful that the positive decisions upholding coverage continue to come out to support small business owners during these unprecedented times.
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