In the aftermath of the COVID-19 pandemic, it was a terrifying surprise to many businesses that their insurance policies would not pay for the business losses they suffered during the government-mandated lockdowns.
While many of these cases went to court, the courts often sided with the insurers, rationalizing that the coronavirus can’t cause physical losses, which insurers have argued triggers business interruption coverage.
But last month, the California Supreme Court accepted a review of a lower court’s question about whether the presence of COVID-19 constitutes a direct physical loss for the purposes of commercial property insurance. What does this mean for the state’s business owners?
The current business interruption lawsuit landscape
Insurers have firmly maintained that business interruption insurance can’t cover losses related to pandemic business restrictions, especially if the policies have exclusions for communicable diseases. However, that hasn’t stopped businesses from trying. Nearly 2,300 lawsuits have been filed in the U.S. over denied business interruption coverage for COVID-19-related losses – many of which were filed by businesses in the food industry.
Why is the Supreme Court’s review crucial?
The Supreme Court’s review is worth keeping an eye on because California’s highest court had turned down earlier opportunities to settle debates in coronavirus insurance lawsuits – until recently. If the Supreme Court decides that the presence of COVID-19 counts as a direct physical loss, it could set a precedent for all business interruption insurance cases, and business owners can potentially claim insurance on their pandemic shutdown losses.
With the situation still in development, it would be best for businesses to wait for the court’s decision. But because most commercial property insurance policies have provisions requiring that the policyholder sue for coverage within one or two years of the date of loss, some business owners may not be able to await the Court’s decision before filing suit on their COVID claims.