COVID-19 and “Business Interruption” Insurance Coverage Disputes

Submitted by HKM Profession… on Fri, 04/03/2020 - 16:45

COVID-19 Business InterruptionBy: Scott G. Williams

Our nation is taking unprecedented steps to curb the spread of COVID-19. Stay-at-home and shelter-in-place orders are taking a toll on businesses as they are forced into temporary closures. These changes and business disruptions are prompting innumerable businesses to submit claims to their insurance companies for financial losses associated with COVID-19. 

Key Takeaways for Your Business

As you navigate your legal obligations as an insured or an insurer, here are some things to keep in mind:

  • Analyzing whether coverage exists is a policy-specific inquiry. Coverage must be assessed on a case-by-case basis.
  • Conduct a diligent review your policies and evaluate your legal obligations and options.
  • Coverage issues may need to be litigated. The outcome of the litigation will depend upon the nuances of the legal questions presented to the court.

HKM attorneys can guide you through these considerations and your options. 

In turn, some disputes about coverage obligations will undoubtedly head to court. Indeed, this week, at least three insurance coverage cases relating to financial losses suffered as a result of COVID-19 have been filed in United States courts. These lawsuits, which are detailed below, were brought by owners of restaurants and casinos that were forced to temporarily close due to COVID-19. Many more similar actions undoubtedly will follow.

Cajun Conti LLC v. Certain Underwriters at Lloyd’s, London

The owners of a Louisiana restaurant, Oceana Grill (“Owners”) are suing their insurer, alleging that their “all risk policy” provides coverage due to business income loss for the insured premises. The policy provides coverage for property, business personal property, business income, and extra expenses, as well as ordinance or law coverage.
The Owners ask the court to declare that because the policy contains no exclusion for a viral pandemic, it provides coverage in the event of civil authority shutdowns of restaurants. This argument is rooted in policy language regarding physical loss affecting business income. The Owners’ complaint alleges: “[I]t is clear that contamination of the insured premises by the Coronavirus would be a direct physical loss needing remediation to clean the surfaces of the establishments.”

French Laundry Partners, LP v. Hartford Fire Insurance Co.

The case out of California presents a nearly identical complaint as the case referenced above. The owners of two California restaurants (The French Laundry and Bouchon Bistro) similarly seek a declaratory judgment concluding that Napa County’s stay-at-home order triggers coverage because the policy does not include an exclusion for a viral pandemic and actually extends coverage for loss or damage due to virus. The Complaint alleges that “[i]nsurance is extended to apply to the actual loss of business income sustained and the actual, necessary and reasonable extra expenses incurred when access to the scheduled premises is specifically prohibited by order of civil authority as the direct result of a covered cause of loss to property in the immediate area of plaintiffs’ scheduled premises.”

Distinct from the Ocean Grill, this complaint alleges that the policy at-issue contained a Property Choice Deluxe form specifically extending coverage to direct physical loss or damage caused by virus. This complaint also alleges that the California restaurants have already furloughed more than 300 employees.

Chickasaw Nation Department of Commerce v. Lexington Insurance Co., et al.

In a case out of Oklahoma, the Chickasaw Nation Department of Commerce (“Nation”) is suing 15 insurance companies seeking a declaratory judgment that the various policies at issue “cover the Nation’s losses and expenses related to the COVID-19 pandemic and infection and the Defendant Insurers are responsible for said losses and expenses.” This lawsuit arises out of the closure of Oklahoma casinos run by the Nation.

The Nation alleges the “all risk” benefits policy provides coverage for “business interruption, interruption by civil authority, limitations of ingress and egress, and extra expense.” The complaint alleges that as a result of COVID-19, the Nation’s property sustained “direct physical loss or damage and will continue to sustain direct physical loss or damage.”

Questions? We’re Here to Help.

HKM’s attorneys are continually monitoring the ever-changing response to this unprecedented situation. If your business is confronted with a coverage issue relating to COVID-19, we stand ready to assist you. As always, we hope you and your families stay safe as we work through this difficult time together. 

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