You diligently paid insurance premiums for years. Maybe you once had a small claim when a customer slipped or an employee claimed a wrongful termination. Fast forward to the spring of 2020 when our country basically stopped. Unless you were an essential business, you probably had to close your doors. If you kept your doors open, 90% of your revenue was still lost.
Maybe you have a fine dining restaurant. Even if you can still offer takeout, few people are going to pay $80 for three course meal served in Styrofoam. Perhaps you’re a hotel in Orlando. Your doors may be open but occupancy is now below 10%.
Fear not because you have business interruption insurance. First you call your agent to learn how to make a claim. Next you exchange some paperwork. And then comes the denial letter.
Although every claims denial letter (often called a “declination of coverage” letter) is different, most have similar language:
“Dear valued customer: We have reviewed the facts of the loss as presented and the orders of civil authority impacting your business. Based upon this review, Friendly Insurance Company has determined the orders issued by governmental officials impacting your premises were issued to curtail the spread of the COVID-19 virus. There is no information supporting any direct physical loss or damage which would trigger coverage.”
We have been reviewing these claims denial letters at an alarming rate. To date, we haven’t seen a single claimed honored.
How Can My Insurance Company Deny My Business Interruption Claim?
That’s the question everyone is asking.
Let’s start with the bad news. Some policies have a specific virus exclusion. After the SARS scare in the early 2000’s, an insurance industry trade organization developed language in 2006 that some carriers adopted. It says, “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
You have an uphill fight if that provision is in your policy. The good news is that many policies have no such exclusions while others are specific to bacterium. Believe it or not, there is a scientific difference between bacteria and a virus.
There is even more good news. In most states, ambiguous policy language must be interpreted in favor of the insured and not the insurance company.
Assuming you don’t have a virus exception but did purchase business interruption coverage, we bet there is a provision that limits coverage to situations where there is “direct physical loss or damage.”
Simply because we can’t see microscopic viruses doesn’t mean there isn’t physical damage or a loss.
If someone on your premises or staff had COVID-19, chances are there was physical damage. We know that on some hard surfaces, SARS CoV-2 (the virus that causes coronavirus) can survive for days. That is why businesses that have reopened are so focused on constant cleaning with powerful disinfectants. (An article in a prominent environmental journal noted that COVID-19 was identified on multiple surfaces inside the passenger compartments on the Diamond Princess 17 days after the ship was evacuated.)
Most policies say physical damage or loss. The magic word is “or.” Even if there is no damage, we believe there is a loss. Insurance companies are telling claims adjusters that terms physical damage or loss are interchangeable. Look up “loss” in a dictionary, however. Miriam Webster defines “loss” several ways including the act of losing possession (deprivation) and the harm resulting from loss.
If you can’t serve customers or open your doors to the public, we think any reasonable jury would consider that a loss.
Talking about juries is the perfect segue to the next section of this post…
How Do I Sue My Insurance Company for Denial of My Business Interruption Claim?
There are several theories or “causes of action” which may apply to your claim.
First is breach of contract. Your insurance policy is a contract. An insurance company can’t deny a claim simply because they fear the potential of paying out on tens of thousands of claims. That is why most insurance companies purchase reinsurance. If they are hit with a big loss such as an earthquake or hurricane, they have the ability to get the money to pay claims.
Because ambiguities are resolved in favor of insureds, the insurance company shouldn’t be able to redefine the term “loss” to mean whatever they want it to mean.
There may be an additional breach of contract claim if the policy has civil authority coverage. That is a provision of many policies that pays for the loss of business income sustained by the insured and “caused by an action of civil authority that prohibits access to [the insured’s] property.” In most states residents were ordered to stay home and/or non essential travel was curtailed.
Even if a state or city didn’t completely shut down you business, we think insurance companies are breaching their contract if they refuse to pay civil or government authority claims where the public was ordered or instructed to stay home.
In a breach of contract action, the court or jury can award monetary damages. In an insurance case that would be the amount of the policy limits identified for business interruption or civil authority claims.
Another form of relief is called Declaratory Relief. Instead of setting the amount of damages, the court orders the insurance company to honor claims. If the parties can’t agree on the amount of damages then either or both can come back to court.
Insurance Bad Faith – The Big Hammer
Every insurance company owes its insured a duty to act in good faith. This is sometimes called an “implied covenant of good faith and fair dealing.” If a carrier fails to properly investigate a claim or unreasonably denies an otherwise valid claim, the insured may have an additional claim, a bad faith claim.
Simply because an insurance company denies a claim doesn’t mean there is bad faith. Its not enough to say that the insurance company denied the claim. We believe that many insurance companies aren’t even investigating coronavirus related claims, however. They are just rubber stamping claims denial letters.
Bad faith claims vary widely from state to state. One common theme, however, is that many of these laws have attorney’s fees provisions and provide for damages that exceed the policy limits. The idea is to teach bad insurance companies a lesson.
Common insurance bad faith schemes include:
- Failure of an insurer to pay a claim without a reasonable basis to do so.
- Failure of an insurer to timely investigate and resolve claims.
- Failure of the insurer to timely pay a covered claim.
- Attempting to settle a claim for less than the amount due (“lowballing”)
- Not acting in good faith or in compliance with industry standards.
- Demanding excessive or burdensome proofs of loss not necessary to process a claim.
- Failure of an insurer to provide a reasonable explanation when coverage or claims are denied.
- Telling an insured not to hire a lawyer.
- Misrepresenting the statute of limitations (time period to sue) or deliberately delaying payment of a claim until after the statute has run.
- Altering terms of the policy or endorsements without proper advance notice and / or consent of the insured.
- Withholding information favorable to the insured when processing claims.
- Using third parties such as private investigators, claims adjusters or independent medical examiners in a scheme to deny or reduce claims.
- “Jacking up” premiums or cancelling a policy after a claim that was not the fault of the insured.
- Engaging in tactics meant to intimidate insureds into not filing claims. This includes misrepresenting facts, creating false facts or misrepresenting the law.
Mahany Law – Insurance Bad Faith Lawyers
If your business interruption or civil authority insurance claim is denied, you need professional assistance. Big insurance companies are relying on the fact that most insureds grumble but don’t take action.
They also know the typical policy limits damages in these claims to a couple hundred thousand dollars. It can be tough to find a lawyer that handles insurance bad faith claims in good times. As a result of the pandemic finding a lawyer could be even more difficult.
Depending on the size of the claim and the limits in the policy, we consider insurance bad faith claims either as a standalone case or as part of a class action. Unlike the typical consumer class action where you might get a check for a couple bucks or a coupon for a free product, we are bringing class actions seeking declaratory actions. That means we are seeking an order from the court requiring a particular insurance company to honor all coronavirus related business interruption claims.
To learn more, visit our coronavirus business interruption claims information page* and our insurance bad faith information page. Ready to see if you have a case? Contact us online, by email or by phone 202-800-9791. We have attorneys and law firm partners across the United States. We fight for the maximum coverage and benefits due our clients and maximum damages when the carrier has wrongfully failed to pay.
Cases can be handled on a contingent fee basis meaning no fees or out-of-pocket costs unless we win. All inquiries are confidential.
*We wrote our coronavirus business interruption page on February 5th before COVID – 19 even had a name and have been advising on insurance bad faith for years.