With Chicago businesses closing due to coronavirus, business owners are relying on protection for lost revenues, expenses, and wages through business interruption insurance coverage. Claim denials may result in lawsuits against insurance companies.

What is Business Interruption Insurance?

Business interruption insurance is a type of insurance that covers business losses during a disaster. When a business is forced to close by federal or state governments due to a national disaster, the business is entitled to recover losses caused by mandated closure or the necessary rebuilding process following a  disaster.

Generally, business interruption insurance is added to an existing property/casualty policy or included in a comprehensive package policy as an add-on or rider, rather than sold as a separate policy to business owners. This type of insurance generally covers the following:

  • Business operating expenses
  • Payroll expenses
  • Business taxes
  • Loan payments
  • Employee wages
  • Reimbursement of lost profits

It also covers expenses to move to a temporary location, if necessary, due to street closures and mandated curfews, as well as new equipment and training costs to reopen the business in a temporary location.

Business interruption insurance premiums are tax-deductible as ordinary business expenses, and the payable amount is usually based on the past financial records of the business. Insurance coverage lasts until the end of the business interruption period, usually defined by an insurer as the date that the covered peril began until the date that the business can safely reopen.

COVID-19 Mandated Business Closures

When the coronavirus pandemic hit the United States, all non-essential businesses around the country were ordered to close their doors to prevent further spread of life-threatening infections and deaths. Mandated closures impacted millions of businesses who suffered loss of revenue and millions of workers who lost their jobs and incomes.

In the wake of a national disaster and mandated business closures, business owners assumed that business interruption insurance would provide protection for lost business revenue and lost income for workers. Unfortunately, that has not been the case. Although businesses around the country submitted prompt business interruption insurance claims, thousands have been denied by insurance companies. Many insurers have taken the position that claims related to COVID-19 are not covered, either because the business property suffered no physical damage or the owner’s policy expressly excluded coverage for viral contamination. During the SARS pandemic in 2004, many insurance carriers excluded coverage for all viral-related damages.

In Chicago, the business owner of the Big Onion Hospitality Group who owns eight-city restaurants and bars was mandated to close in mid-March. He assumed his business interruption insurance would cover his business operating expenses, lost revenue of $5 million to $6 million per month, and payroll for over 450 furloughed workers. Unfortunately, he was informed in a letter by his insurer that none of his expenses would be covered.

As a result of insurance companies refusing to cover COVID-19 claims, business interruption attorneys have seen a rise in claim denials for Chicago business owners. Chicago restaurants are driving a spike in lawsuits against insurance companies denying claims, but other businesses who are suffering huge losses are following suit.

Thousands of established Chicago restaurants and businesses have closed since the COVID-19 lockdown was implemented. Without financial help from business interruption insurance, it’s likely that many will not have the funds to reopen when lockdown orders are lifted. According to the National Restaurant Association, approximately 40 percent of restaurants will not survive the pandemic without financial assistance.

COVID-19 Business Interruption Lawsuits

To date, more than 100 federal lawsuits have been filed against insurers, and business interruption attorneys expect numbers to rise. The current number for federal lawsuits filed does not include lawsuits filed in state courts by various business owners around the country.

The main question binding federal and state lawsuits is whether the coronavirus pandemic should be covered by business interruption insurance. While businesses are relying on financial help for a national disaster, insurance companies are denying claims related to coronavirus, since coverage for viral pandemics were eliminated during the SARS outbreak. Insurers are giving blanket denial to COVID-19 claims filed with business interruption attorneys, while business owners are counting on an insurance payout to survive.

The American Property and Casualty Insurance Association (APCIA) said forcing insurers to pay COVID-19 claims will undermine the solvency of the insurance industry. They estimate that businesses with less than 500 workers are losing between $3 billion and $6 billion every month.

What started as a judicial issue has now become a legislative issue. Bills requiring insurance companies to pay COVID-19 business interruption claims have now been introduced in eight states, and the U.S. House of Representatives Small Business Committee is holding a hearing. The Trump administration has announced support for payment of business interruption claims by insurance companies, because most policies do not show exclusions for viral infections like COVID-19.

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