2020 has been a unique year indeed. The COVID 19 outbreak has resulted in a significant decrease in auto accident claims due to fewer drivers on the road as a result of multiple stay-at-home orders being issued and businesses shutting down or moving to remote workforces. Some auto insurers even gave money back to their insureds due to the decrease in driving. However, business interruption claims have increased due to the COVID 19 shutdowns. Based upon the continued potential for rioting and hurricane season off to a big start, Houston insurers are in for a flood of business interruption claims this year.
Background on Business Interruption Claims
A business interruption claim is a claim made by a business owner against his own “Business Owner’s Policy” for losses he incurs due to his business being unable to operate. (For more information see: What is a Business Interruption Claim?“) It was generally designed to compensate an owner whose business is physically shut down (i.e. the building is damaged by a natural disaster) until the necessary provisions can be made to make the location operational again.
What is Extended Business Interruption?
Extended business interruption is an addition to a standard business interruption policy that provides additional coverage for the time business is restored up until profits return to normal. Under a standard business interruption policy, lost income is covered until the physical property is restored back to its operable condition. If you have extended business interruption coverage, that would cover any losses from the date it was back in operation until it returned to its normal production and sales levels. So for example, assume you make and sell widgets. It takes 3 months to make the widgets. Your building and all your widgets are destroyed by an accidental fire. Business interruption coverage pays for your losses while you are rebuilding the building. Extended business interruption covers your losses until your widgets are produced and you start selling them again.
What is Contingent Business Interruption?
Contingent business interruption is designed for businesses that are in a chain of supply. It covers your financial losses if one of your suppliers or one of your regular purchasers suffers physical damage to their property which results in your products not being produced and/or sold.
Business Interruption Claims and COVID 19
Over 550 lawsuits nationwide and at least one class action in California have already been filed over insurance companies denying business interruption claims in relation to COVID 19. Many business interruption clauses have a pandemic exclusion or a virus exclusion clause that insurers are using to deny claims. Others have a physical loss requirement that insurers are relying upon to claim they do not have to pay. Lawyers for the businesses are arguing everything from the clauses are too vague to apply to COVID 19 to allegations that COVID 19 did not cause the loss a government shutdown order caused the loss. With billions in lost income at stake, these claims will be in the courts for years to come.
Business Interruption Claims and Riots
Most business owner policies provide coverage for business interruption losses due to physical damage to a building from rioting. However, these cases are not without their argument points either. Many businesses were already shut down or severely restricted before the riots started. So, the real question becomes, can the business owner prove what losses resulted from the rioting vs the COVID 19 shutdown?
It is the claimant’s burden of proof to show that the rioting caused the business interruption losses claimed. In the case of a business that was operating at a reduced capacity already due to COVID 19 shutdown orders, they will have to prove a baseline of what they were able to earn prior to the damage from the riot and then show that due to the riot damage, they were no longer able to earn that amount until the building could be repaired.
While the above sounds fairly simple, in times like this with businesses folding, it becomes very unclear. If a business is already struggling from the shutdown and then gets damaged by a riot, it may simply decide not to rebuild. As a result, there very well may not be a date the business is repaired and returned to the previous operation. All of these “ifs” may have to be answered by juries.
Business Interruption Claims and Hurricanes
Hurricane season poses yet another 2020 threat to Houston businesses. If a building is destroyed by a hurricane then they definitely have the ability to make a business interruption claim for whatever they were earning before the hurricane until the building can be restored. However, if you throw in that the same building may have been the subject of COVID 19 losses and/or riot losses, determining what caused what period of interruption may be very difficult. In addition to these issues, repair of the building itself may be delayed due to windstorm, hailstorm, and flood insurance companies fighting over who must pay for the building that was destroyed by the hurricane. Failure of the insurance companies (and ultimately the insured) to repair the building timely can result in business interruption claims being cutoff.
Conclusion
Between government-ordered shutdowns due to COVID 19, riots, and potential hurricanes, Houston business insurers are bracing for a flood of business interruption claims. The complexities of these policies and the variation of clauses and exclusions within the policies will likely result in many years of litigation. Meanwhile, business owners will have to struggle to stay afloat in a rough economy until these cases can sort themselves out. If you need to know where to turn next with your business interruption claim, call us at 1-00-298-0111 for a consultation.
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