Thought Leadership

COVID-19 Presents a Unique Coverage Dispute for Insureds and Insurers

COVID-19, or the novel “Coronavirus,” has officially taken over our personal and professional lives. And due to its sweeping effects, we have seen dramatic and unprecedented actions being taken by our local, state and federal governments to limit its spread with the hope of maintaining some type of normalcy during these trying times.

The economic strain of this virus, which is largely to-be-determined, is fueling a novel dispute of its own between business owners (insureds) and their commercial insurance carriers (insurers): Does this pandemic trigger a claim for “business interruption” losses under a commercial insurance policy? Let’s take a closer look.

What is “Business Interruption?”

In most commercial insurance policies, the insured will be covered for “business interruption” losses that occur after the insured suffers a physical loss, which prevents the business from operating. For example, if the insured operates a retail clothing store in rural Minnesota and is severely damaged by a tornado, the business likely has a claim for “business interruption” under its commercial insurance policy. Assuming there is coverage, the business may be entitled to recover its net income for the time period it is closed for repairs.

Traditionally, however, business interruption coverage has only been triggered in situations where there is a “physical loss” (i.e. building damage, flooding, etc.) that prevents a business from operating.  While COVID-19 has not knocked down any buildings (yet), its interruption on business has been undeniable. And with that, some novel legislation and litigation has come to light.

New Legislation and Litigation

On Monday, March 16, 2020, New Jersey legislators introduced Bill A-3844, which sought to allow insureds to recover business interruption losses from their insurers due to interruptions caused by the COVID-19 pandemic. The bill was to apply to New Jersey business with less than 100 full-time employees (25 or more hours/week).

The bill was heavily opposed by the insurance industry for multiple reasons. Most importantly, the bill raised significant contract interpretation and constitutional questions as the proposed legislation would compel insurers to provide coverage for a situation expressly excluded in the policy. Second, insurers argued the costs would be exorbitant and would lead to increased premiums across the board.

Ultimately, Bill A-3844 was withdrawn before a vote was taken; however, due to the sweeping economic relief being considered, one could envision the bill being resurrected very soon.

In the State of Louisiana, one restaurant filed a petition for declaratory judgment, seeking an order that its business interruption coverage will be triggered as a result of Governor Edwards’ order to close its restaurant. (Oceana Grill v. Certain Underwriters at Lloyd’s, London, et al.)

While it appears to be the first pending lawsuit of its kind, it is clear that other restaurant owners are keeping watch. And, with seemingly more business and restaurant closures on the horizon, the potential litigation crowd continues to grow.

How to Respond to COVID-19

The response to the COVID-19 pandemic is constantly changing. That said, however, business owners should take this time to (among other things, of course), review their commercial insurance policies for potential gaps in coverage. Secondly, both insurers and insureds should continue to monitor proposed legislation and contact their representatives as appropriate.

If you are a business owner, or insurance carrier, and would like an analysis of your policy language, please contact the attorneys at Hellmuth & Johnson today.


Christopher R. Sall
Phone: 952-746-2136