Business Interruption Cases: Fighting for Insurance Coverage When It's Not Business as Usual

JurisdictionCalifornia,United States
AuthorBy Pratik Shah & John Gomez
Publication year2020
CitationVol. 26 No. 3
Business Interruption Cases: Fighting For Insurance Coverage When It's Not Business As Usual

By Pratik Shah & John Gomez

PratikShah is a co-founder and lead trial lawyer for Shah D'Egidio APC located in San Diego that focuses on personal injury and bad faith litigation. Pratik and his firm have helped homeowners and business owners recover millions of dollars from their own insurance companies after they have suffered damage or loss due to fire, water, and other natural disasters.

A Yale Law graduate, John Gomez is the President and Founder of Gomez Trial Attorneys located in San Diego, California. He is a two time Trial Lawyer of the Year and an 11-time "Outstanding Trial Lawyer" awardee.

In the wake of the Coronavirus pandemic, hotels, gyms, restaurants, and bars are all shuttered. Casinos, sports stadiums, and event centers sit empty. Other "non-essential" businesses remain closed. By the time the United States re-opens, small businesses will have lost billions of dollars. Many of those small businesses have already filed claims with their insurers for lost profits and additional expenses under the "business interruption" provisions in their policies. Without exception, those claims have been universally denied. Many lawyers are preparing to fight the coverage battle in courts all over the United States. While the lawyer representing the insured must read each individual insurance policy, there are really three big questions in these cases. We address those below. We do not attempt here to set forth the law that defines how courts interpret insurance policies in general. Suffice it to say, all ambiguities are resolved against the insurer. Bear that principle in mind as you read the following.

ISSUE #1: DOES THE CLOSURE (OR SLOWDOWN) OF A BUSINESS BECAUSE OF CORONAVIRUS OR A SHUTDOWN ORDER CONSTITUTE "PHYSICAL LOSS" OR "DAMAGE" TO THE PROPERTY AT ISSUE?

What follows is typical language in a "business interruption" provision:

We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises.

Insurers across the country are now denying business claims wholesale because, they say, closure due to Coronavirus or a government order does not constitute "physical damage" to the property at issue. Here, for example, is the denial language from the same insurer whose policy is quoted above:

The policy provides Business Income coverage when there is a suspension of your operations at the described premises and result from a covered cause of loss. The closure of your business, resulting in a loss of income is not related to any direct physical damage to the business personal property or the building. (emphasis added).

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And so, this insurer (and every other one) is taking the position that there must be direct physical (think structural) damage to the property at issue. That position comports with the usual type of claim: an interruption in operations caused by flooding, a fire or something similar. And there is a good argument that the mere presence of the virus constitutes physical damage. Many government closure orders support that reasonable conclusion. But there is another argument to be made. Query this. Bearing in mind that all ambiguities must be construed in favor of the insurer, what is the meaning of "loss of ... property" as opposed to "damage to ... property?" And why is there an "or" between the two? Indeed, one possible...

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