Is business interruption due to COVID-19 a valid insurance claim? If it is a valid insurance claim, do you also have an insurance bad faith claim when your insurance company refuses to pay?
Restaurants and small businesses are already starting to file lawsuits over unpaid claims – even when insurance policies do not exclude pandemics, epidemics, or viral outbreaks from their coverage, insurance companies are refusing to pay.
If you believe that your business has insurance coverage for business interruption or “force majeure” and your insurance company is refusing to pay, your Myrtle Beach insurance bad faith attorney on the Axelrod team can review your policy, demand payment from your insurer, and file suit if they are refusing to pay a valid claim.
Does Insurance Cover Business Interruption Due to COVID-19?
Restaurants and other businesses purchase insurance to protect them from unpredictable events that could cause them to suffer losses or even go out of business – events like a global pandemic and government-ordered business closure…
Insurance companies sell insurance to restaurants to make money. Lots of it, and the only way to make lots of money selling insurance is to limit the number of claims that are paid out.
So, does your insurance cover business interruption due to COVID-19? Maybe.
It depends on the language contained in your insurance policy. For example, does your policy:
- Exclude viruses, pandemics, or epidemics?
- Exclude any damage that is not “physical?”
- Exclude or specifically cover damage caused by government action such as mandatory business closures?
- Cover “all risks?”
Some insurance policies have broader coverage than others. Some insurance policies, once you review the “fine print” and exclusions, don’t cover much at all. Other policies are marketed to business owners as “all-risk” policies.
What’s an all-risk policy?
All-risk policies, says Michael C. Davis, one of the attorneys representing the Washington restaurants, are “supposed to cover every single risk. It doesn’t matter whether the risk is listed. It doesn’t matter if it’s a risk no one ever heard of. It doesn’t matter if it’s Martians coming down from Mars. Unless it’s specifically excluded, you’ve got to cover it. That’s the way all-risk policies work, and that’s how they were marketed to restaurants.”
If the insurance company sells you a policy that is supposed to be “all-risk” and you pay your premiums, they must hold up their end of the bargain and pay your claim. If your policy does not specifically exclude viruses or government shutdowns, they must hold up their end of the bargain and pay your claim.
So why are insurance companies denying claims based on COVID-19 losses?
Will Insurance Companies Go Bankrupt Due to COVID-19 Claims?
Why are insurance companies denying claims? The same reason insurance companies always deny claims – they are a trillion-dollar-a-year industry and they didn’t get that way by paying claims…
Why do insurance companies say they aren’t paying claims?
Most of the denials are based on 1) a specific exclusion of viruses or 2) the lack of physical damage to the property. More to the point, the insurance industry will lose a lot of money by paying COVID-19 claims, and some are claiming the insurance industry would go bankrupt:
The insurance business works by spreading risk around so the industry isn’t hit all at once with claims, says Kevelighan. A pandemic disrupts business far and wide, with no end date in sight. About 40 percent of all companies have business-interruption insurance, Kevelighan says. If lawmakers require carriers to pay these claims, it could cost the insurance industry $150 billion a month, which would quickly deplete its $800 billion surplus, he says.
Is that a valid excuse for not paying claims? If a restaurant contracts with an insurance company to cover unexpected losses so the restaurant will not go bankrupt and the insurance company takes their money in premiums, can the insurance company then say, “sorry, we’ll go bankrupt if we honor our contact?”
Of course not. It’s what the insurance company bargained for – payments of premiums in exchange for coverage in the event of an unforeseen catastrophic loss. Who should go bankrupt, the restaurant or the insurance company?
If your answer is the restaurant, consider that the insurance company is not going to go bankrupt. Like restaurants, insurance companies purchase their own insurance, called “reinsurance,” to cover against catastrophic losses such as, say, a pandemic that results in a flood of claims…
What is Reinsurance?
Reinsurance is insurance for insurance companies:
Reinsurance is a form of insurance purchased by insurance companies in order to mitigate risk. Essentially, reinsurance can limit the amount of loss an insurer can potentially suffer. In other words, it protects insurance companies from financial ruin, thereby protecting the companies’ customers from uncovered losses.
Insurance companies are undoubtedly required to limit their liability inasmuch as possible before their reinsurance policies kick in, and they will most likely have a second legal battle on their hands with their own reinsurance policies (reinsurance companies also do not get rich by paying claims), but they are not going to go bankrupt.
What motivates insurance companies? Profit. If insurance companies will profit more by paying claims, they will pay claims. If they will profit more by denying claims, even though they will end up paying court costs, judgments, attorney fees, and potentially punitive damages, they will deny the claims…
Can Congress or State Legislatures Force Insurance Companies to Pay Claims?
Some federal and state lawmakers have recognized the problem and have introduced bills that would force insurance companies to pay COVID-19 business interruption claims for small businesses and potentially require the government to reimburse insurance carriers for at least a portion of their losses:
Federal and state lawmakers are also getting involved. Legislators in several states have introduced bills that would require carriers to pay business-interruption claims for small companies that have experienced covid-19 related losses or have been ordered closed. Notably, the bills could demand such payouts even if policies excluded viruses or required physical damage. Similarbills have been introduced in the House of Representatives, including one that would have the federal government cover excessive losses in the insurance sector.
Can state or federal government force insurance companies to pay claims?
Maybe… any law forcing insurance companies to pay claims might be unconstitutional under Article I, Section 10, Clause 1 of the US Constitution:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
In addition to bad faith insurance and breach of contract claims by businesses against insurance companies and insurance companies against their reinsurers, insurance companies will most likely challenge any legislation requiring them to pay claims as unconstitutional.
If your insurance company is refusing to pay your claim based on business interruption or force majeure clauses in your insurance policy, you may have a claim for breach of contract and insurance bad faith. Your bad faith insurance attorney at Axelrod and Associates can review your policy, demand payment from your insurance company, and may be able to recover damages including the amount of your claim, your insurance premiums, attorney fees, and even punitive damages.