Insurers sued over business interruption coverage

Editor’s note: This story first appeared in the April 22 issue of BizNewsPA

What do a pizzeria, a dental practice and a bridal shop have in common? They are among the plaintiffs in a string of class-action lawsuits seeking to force insurers to reimburse businesses for income lost during the Covid-19 pandemic, according to a joint press release from the four law firms that filed the lawsuits. None are in Pennsylvania.

Why do the businesses need to sue? Insurers sell policies that cover a temporary loss in sales, known as business interruption. But the policies generally only kick in after a fire, flood, tornado or some other kind of physical destruction. 

  • Most policies do not cover sales lost during a pandemic.
  • But businesses — and many lawmakers — have been pressing insurers to cover losses stemming from Covid-19.
  • The pandemic has led to widespread stay-at-home orders that have all but choked off commerce, especially for businesses that rely on foot traffic and physical proximity.
  • An insurance industry official has said insurers simply do not have the money to pay all the claims that would result.

Who will win? That’s up to the courts, but a recent ruling by the Pennsylvania Supreme Court seemed to give businesses some ammunition.

What ruling? It came in one of the lawsuits challenging Gov. Tom Wolf’s order to shut down the physical locations of non-essential businesses. Wolf prevailed.

What did it have to do with business-interruption insurance? The ruling included an opinion that a pandemic is akin to other natural disasters that result in “physical property damage or loss.” 

  • That opinion could turn up in lawsuits arguing that insurers should pay business-interruption claims, according to attorneys who have been following the issue
  • “The court’s correlation of Covid-19 to other types of ‘natural disasters’ is helpful to the argument that the pandemic has caused significant ‘physical property damage or loss,'” wrote R. Craig Black, an attorney with Lancaster-based law firm Saxton & Stump.

What about the the legislature? A state House panel yesterday voted 23-2 to approve legislation creating a business-interruption grant program for Pennsylvania-based companies with less than 200 employees.

  • The grant program would pay off business-interruption claims that are denied by insurers.
  • The bill does not contain a mechanism to fund the grants, though other proposals have suggested tacking on surcharges for insurers.


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