In the first case of its kind to be decided across the country, an Indiana Court has dismissed a claim by a business attempting to recover money under its business interruption insurance due to the coronavirus. The case has caught a great deal of attention, as it may presage other similar cases being decided around the country, including in New York, where businesses struggled to stay open during the coronavirus quarantine. However, while it is tempting to ascribe a great deal of significance to this case, attempting to apply the ruling widely may be difficult.
The coronavirus, also known as COVID-19, remains the largest health crisis the United States has seen in over a century. With more than four million confirmed cases and 150,000 confirmed deaths in the United States alone, the coronavirus has caused havoc across the globe. New York, sadly, was not spared from COVID-19, and was particularly hard hit when the virus first became widespread in late February and March.
As a result, New York instituted strict quarantine measures to try to stem the spread of the disease. These measures forced many businesses to either significantly restrict their operations, or else close entirely for the duration of the quarantine. During this time, those businesses generated little or no income, while continuing to incur expenses due to rent, utilities, loan payments, and other financial obligations that were not suspended during the quarantine. Even with some financial assistance from the government, many of these businesses have closed or declared bankruptcy, while others are struggling to find any available solution to shore up their struggling finances.
Enter business interruption insurance. As the name suggests, business interruption insurance is a kind of insurance that businesses can purchase that protects them from losses caused by interruptions to their normal ability to do business. When a business experiences a business interruption, the insurance policy then covers a certain amount of the losses from the time where they were unable to do business.
The catch is that, typically, business interruption insurance only covers disruptions caused by physical damage to the place of business. This includes events like fires, floods, storms, and other similar disasters that physically impede the ability of a business to function. Unless they have specific language to the contrary, they usually do not cover interruptions caused by government action (known as a “civil authority” clause) or disease. As a result, businesses may have difficulty recovering under most business interruption insurance clauses, much to their dismay.
There is also another potential hurdle as well. Many business interruption insurance plans place strict limits on the duration of an interruption they will cover, with many policies covering only two weeks of interruptions. Thus, even if you have a business interruption insurance plan that covers your losses due to the pandemic, the amount you recover may be very limited.
A version of this scenario played out in an Indiana court in the case of Gavrilides Management Company, et al. v Michigan Ins. Co., where a business attempted to collect on its business interruption insurance policy after being shut down due to its own state’s quarantine. As the judge in that case noted, however, the policy only covered business interruptions resulting from an event that “alters the physical integrity of the property.” In other words, because the coronavirus did not cause physical damage to the place of business itself, the business interruption insurance did not cover losses resulting from either the disease or the quarantine.
While it is not guaranteed that every court will rule this way, the fact of the matter is that business interruption insurance policies are often worded to narrowly cover specific kinds of interruptions. This means that it will be difficult to recover for anything which falls outside of the narrow boundaries of the insurance agreement’s language. However, anyone who has a business interruption insurance plan should not fret just yet; this is only a single ruling from a single court, and there is likely to be a great deal more litigation before this issue is entirely settled.
If you are a business owner with a business interruption insurance plan, and you want to recover for losses suffered due to the coronavirus pandemic, you should seek out a business law attorney with experience in the field. The business law attorneys at Blodnick, Fazio & Clark are skilled and knowledgeable in the areas of business law and commercial transactions. With offices conveniently located in Garden City, Nassau County, and Babylon, Suffolk County, the firm provides high-quality legal care at reasonable prices. If you require legal assistance concerning business startups, formation, corporate acquisitions and mergers, corporate restructuring, or another business matter, call (516) 280-7105 or fill out our contact form for a free consultation.
