Business interruption insurance claims: what you need to know

To the shock of many restaurant owners, insurance companies have been denying business interruption insurance claims in the wake of the COVID-19 pandemic and the resulting state and local shut-down orders. “All insurance companies will automatically deny these claims,” says Jeremy M. Creelan, partner, Jenner & Block LLP, Chicago. “But all is not lost.”

Creelan and two other partners at the law firm, Gabriel K. Gillett and Jan A. Larson, addressed many of the questions restaurant owners have about business interruption insurance claims, the introduction of legislation, and the status of litigation against the insurance industry during a webinar on May 13. Moderated by Angelo Amador, executive director of the Association’s Restaurant Law Center, the lively 90-minute session offered operators help in understanding the key issues at stake and hope that their grievances will be heard and addressed.

Check your policy language

Typical business interruption or business income insurance policies cover loss of net income and normal operating expenses during the time an operation is closed or partially suspended, says Larson. Coverage may also include “contingent business income” such as supply chain interruptions. Policies also typically include language about time periods, such as a waiting period of 48 to 72 hours after the initial loss before coverage kicks in, and a point at which coverage ends, such as a “date certain,” 60 days, for example, or when premises can be restored with reasonable speed.

But policies and the language they use vary, and so does coverage. You may have additional coverage provided in a general business interruption policy, or you may have paid extra for specific coverage. Here’s some of what to look for in your policy.

Civil authority. Coverage may apply if a civil authority orders your restaurant to close.
Communicable disease. Coverage could include loss caused by disease, which may be subject to a sub-limit and/or an evidentiary requirement.
Other coverage. May include ingress/egress, decontamination, mitigation, and event cancellation.
Physical loss or damage. In most policies, coverage isn’t triggered unless there’s physical damage to the property, but language varies. Many of the lawsuits now being filed argue that the coronavirus damages or poses a physical threat to restaurant property, but you might have to prove that your restaurant was contaminated by an infected person.
Covered cause of loss. Look for causes your policy includes. In some cases, policy language might say, “all risks of physical loss unless loss is excluded or limited.”
Exclusions. Unless your policy specifically excludes “viruses,” “pandemics,” “loss of use,” or “contamination or pollution,” etc., you could have valid grounds for a claim.

Legislative & litigation efforts

The Association and the Restaurant Law Center are actively engaged in discussions with chief legal officers in the industry, individual brands litigation, reviews of state and federal legislation proposals, and potential first-party lawsuits and/or briefs in support of ongoing litigation, according to Amador.

A number of other groups such as the Independent Restaurant Coalition (IRC), Business Interruption Group (BIG), Chicago Hospitality Coalition, and other local organizations are actively proposing legislation and filing lawsuits against insurance companies.

At the state level, proposed legislation would require property insurers to provide coverage for COVID-19 business interruption losses. Some of these bills would be retroactive, and most initiatives focus on businesses with fewer than 100 employees. But Amador says all the legislation is in early stages, and likely could not be retroactive.

At the federal level, proposed legislation includes the Business Insurance Coverage Act of 2020, which the Association does not support, and the Pandemic Risk Assurance Act (PRIA) proposed by the U..S House Financial Services Committee, which Amador says is a good idea.

Lawsuits filed in both state and federal courts involving individual restaurants and insurers — differing in terms of situations and policy language — are now too numerous to count, Amador says.

Suits include both individual and class actions, and there are now several applications for multi-district litigation designed to consolidate and speed up cases. But litigation could be tied up for years, so don’t expect a quick fix.

What you can do

Be prepared for your insurance claim to be denied and look for relief from other sources if you haven’t already. In terms of practical considerations, you should take several steps.

Check your insurance policy’s notice provision, specifically the timing of when you need to notify your insurer of your loss and what it should include.
Track losses and additional expenses. Keep a record of expenses by amount and type, periods of complete and partial shut-down, and costs of things such as extra cleaning, delivery, PPE, etc.
Make a record of any confirmed cases of coronavirus on your premises.
Consider filing or joining a lawsuit against your insurer. Weigh the various approaches (individual, class or mass action), costs (fee basis, contingency or hybrid) and forums (state or federal court). Consider the benefits and drawbacks of participating in a suit.

Resources

The webinar content is available on the Restaurant Law Center site. All of the webinar panelists indicated they’re willing to answer individual questions.

Angelo Amador, Restaurant Law Center, AAmador@restaurant.org; 202-492-5037.
Jeremy Creelan, Commercial Litigation, Jenner & Block, jcreelan@jenner.com, 212 891-1678.
Jan Larson, Insurance Recovery & Counseling, Jenner & Block, janlarson@jenner.com, 202-639-6046.
Gabriel Gillett, Appellate & Supreme Court, Jenner & Block, ggillett@jenner.com, 312-840-7220.