Restaurants Cry Foul Over Business Interruption Denials

business interruption denial

A group of restaurateurs in the Buckeye State have joined a growing list of coronavirus-related business interruption denial claimants in federal courts nationwide.

Several other kinds of coronavirus lawsuits are working their way through the judicial system.

Highlights include class action lawsuits against airlines and ticket retailers for failure to give refunds and wrongful Paycheck Protection Program loan denials.

Business Interruption Policies: A Brief Overview

In 2018, the American insurance industry collected over $1.8 trillion in premiums. Much of that money paid for business interruption insurance policies.

Typically, these policies cover losses related to civil action closures or physical damage to the insured property. More on these things below.

As far as the insurance companies are concerned, business interruption policies cover losses related to fires, hurricanes, tornadoes, and other natural or no-fault disasters.

Characteristically, the wording in these policies is rather vague.

That vagueness is a double-edged sword. Insurance companies can use it to avoid paying claims, and attorneys can use it to force payment.

Following the SARS (Severe Acute Respiratory Syndrome) outbreak in the early 2000s, a few insurance companies re-wrote their business interruption policies.

They specifically excluded infectious or contagious diseases. But most insurance companies did nothing.

Time is of the essence in this area.

Most policies require policyholders to report covered losses within a few days or weeks.

If the report is late, the insurance company has an independent reason to deny the claim.

Civil Action

Stay-at-home orders vary, but for the most part, they force restaurants to close their dining rooms and restrict service to takeout and delivery.

A few jurisdictions also have mandatory facemask laws which make it illegal to enter any business without wearing a surgical mask.

These laws reduce restaurant patronage even more.

Police can and do issue citations for violating stay-at-home and/or social distancing orders.

This enforcement has a substantial chilling effect.

The economic impact is more than just direct and immediate.

If restaurants are forced to close their dining rooms for a prolonged period of time, many customers will change their dining habits.

Even after the powers that be lift coronavirus restrictions, a significant number of customers might never return, or they might only return sporadically.

Many business interruption policies state that closure due to civil action is a covered loss.

Most insurance companies contemplated things like closures related to civil unrest, such as riots or wars.

Since such events are extremely rare in America, most insurance companies never thought they would have to pay on these policies.

Currently, the debate centers on the definition of “closed.”

If the policy has a civil action clause, many insurance companies claim that the loss is not covered if the restaurant is open for limited purposes.

Financial records are often relevant.

If, as is normally the case, the restaurant’s business trickled down to almost nothing in mid-March 2020, a strong case can be made that the restaurant was effectively closed.

Physical Damage

As mentioned, most business interruption policies contain physical damage clauses.

The insurance company pays if a natural or no-fault disaster forced the restaurant to close. COVID-19 certainly fits into this category.

However, insurance company adjusters often argue that coronavirus is a contagious disease which causes no physical damage.

That’s despite evidence that coronavirus remains on cardboard, stainless steel, glass, plastic, and other hard surfaces for up to seventy-two hours.

That fact, along with the quarantine and loss of business, is often enough to convince a factfinder that payment is appropriate under the policy.

Once liability is established, insurance companies usually have a duty to promptly pay covered losses.

The payment must be for the full insured value. Depreciation or partial opening does not justify partial payment.

Additionally, if policyholders must work with lawyers to defend their rights, the insurance company is usually responsible for all legal fees.

If you faithfully paid premiums for years and the insurance company denied your COVID-19 business interruption claim, contact the experienced bad faith insurance lawyers at Napoli Shkolnik PLLC. We are currently evaluating and accepting such cases nationwide.