COVID Creates Havoc with Businesses and Insurance Companies

Chriss Swaney

Sarasota, FL (WorkersCompensation.com) — A cavalcade of restaurants, retail and entertainment venues are squaring off with insurance companies to approve claims for businesses that face substantial losses due to the ongoing pandemic.

“This is going to be an ongoing issue with insurance companies and businesses as the pandemic continues,” said Richard C. Gaffney, an associate professor of legal skills and director of advanced analytics at Duquesne University’s School of Law. “Some businesses may think they are covered but in reality do not have the business interruption insurance. We have already seen many insurance companies deny claims,” Gaffney said.

Still, experts report that millions of businesses across the country have “business interruption” insurance. But insurance companies have largely refused to pay claims under that coverage citing a standard requirement for physical damage. That is a legacy of its origins in the 1900s as part of property insurance protecting manufacturers from broken boilers or other failing equipment that closed factories.

Chester Spatt, a Carnegie Mellon University Tepper School professor of business and finance and former chief economist at the SEC, said whether pandemics are excluded presumably depends upon the contract language.

“However, it is clear that insurance companies are not anxious to pay claims based upon the pandemic,” Spatt said.

So, businesses are now resorting to lawsuits to get claims paid.

Caesars Entertainment Inc. sued a group of insurance carriers, accusing them of declining to cover an estimated loss of more than $2 billion from the COVID pandemic.

Earlier this year, the International Health, Racquet & Sportsclub Association, which represents 40,000 fitness clubs nationwide hired a cache of new lobbyists to help with the insurance questions due to the pandemic. And the Atlantic Coast Athletic Clubs closed its facilities to 70,000 gym-goers in March. When the company filed a claim with its insurer, it received a notice that pandemic-related interruptions wouldn’t be covered.

However, in a win for insurance policyholders, the United Kingdom Supreme Court recently ruled that insurers must pay out disputed claims related to the coronavirus to a wide range of businesses.

On the other hand, the American Property Casualty Insurance Association says “business interruption” policies were never intended to cover contagions, pointing to a degree of uncertainty in the near future.

“We are going to continue to see a changing landscape,” Gaffney said.

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