Business Interruption Insurance Claims – The Next Wave of Anticipated Litigation

With the State of California, operating under the Stay-at-Home Order, small businesses across the state have shut down.  One of the necessary consequences for these businesses will be addressing the immediate critical question of whether insurance coverage exists for the business interruption.

Last week the first Coronavirus-related business interruption coverage lawsuit was initiated in a United States jurisdiction. In a state court action in Louisiana, the restaurant Oceana Grill filed an action against its insurer for declaratory relief seeking a determination that it had coverage for the business interruption on a policy issued by Lloyd’s of London. (Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s London, et al., Civil District Court for the Parish of Orleans). This will almost certainly be just the first of thousands of lawsuits that will be filed in the near future addressing the issue of coverage for work stoppage based upon orders relating to the Coronavirus.

The action filed by Oceana Grill will be followed closely to examine how courts will deal with these types of claims. Based upon the allegations in the underlying complaint in Oceana Grill, it appears that the policy at issue was written on an “all risks” basis. Therefore, the insuring agreement of the policy would likely be triggered generally by all risks of “physical loss or damage” unless specifically excluded. This type of coverage is common in property policies. If it exists in a policy, it is favorable to the insured as it limits the burden of proof on the part of the insured to establish that there was physical loss or damage, thereby requiring the insurance company to establish that a specific exclusion applies to eliminate coverage.

In the context of Coronavirus-related claims, it is anticipated that the challenge relating to whether coverage exists will be determined based on whether these types of business interruptions qualify as “physical loss or damage” under the “all risks” policy.  Most cases typically require direct physical loss or damage to the business premises within a certain distance. In the case of the Coronavirus pandemic, this will likely require a scientific determination of whether the virus contaminates or damages nearby property and the duration of the damage.

In summary, any business that has suffered economic loss relating to the Coronavirus pandemic should review its insurance policy and tender a claim to its carrier in a timely fashion.

 

Michael Kerbs joined Reid & Hellyer in 1987 and has spent the entirety of his legal career with the firm. A partner with the firm, Michael specializes in business and real estate litigation as well as writs and appeals. As the president of the Inland Empire’s third largest law firm, he oversees day-to-day operations and provides direction for the firm by fostering relationships with clients and encouraging the firm’s attorneys to be involved in their community. A member of the Riverside County Bar Association, Michael has given his time and talent to the local community, serving as a scoring attorney for the Riverside County Mock Trial Competition.