Business interruption insurance is marketed to cover loss of income by a company resulting from an unexpected slowdown or suspension of its operations.  It may include coverage for a slowdown in or suspension of operations due to a governmental order. Such insurance is often combined with coverage for costs in excess of normal expenses required to continue operations following a covered loss.  Contingent business interruption insurance is a related product marketed to provide coverage for lost profit resulting from an interruption in the operations of a customer or supplier.

Business interruption coverage is triggered when the insured sustains a covered loss as defined in the policy.  In the event of a claim related to COVID-19, carriers will dispute whether the physical loss requirement has been satisfied.  In the aftermath of earlier viral outbreaks, carriers added exclusions to preclude coverage for such losses.

Litigation over business interruption losses due to COVID-19 has already commenced.  In one early case, Cajun Conti LLC, et al. v. Certain Underwriters at Lloyd’s, London, et al., No. 2020-02558 (La. Dist. Ct., Orleans Parish, 3/16/20), plaintiff Oceana Grill in New Orleans sought a declaration that its insurer was liable for its restaurant’s business interruption losses due to city and state restrictions on gatherings of over 250 people.  The complaint alleged the insurer had issued an all-risks policy that did not contain a viral pandemic exclusion and covered business losses due to a shutdown by a civil authority.

Coverage in such cases will depend on specific fact and policy language inquiries.  For example, did the business voluntarily impose work restrictions causing a loss of income?  Or, was it required to close by state or local decree? Were restaurants limited to take-out orders or completely shuttered? One must look to both the local, state and federal authorities to determine whether an entity was truly required to close, or did so voluntarily.  In addition, some policies contain limited fungi, bacteria, or virus coverage. This endorsement can either limit losses caused by a virus or exclude them entirely. As noted above, it is imperative to review the actual policy language to determine whether the coronavirus is a covered peril.

There are also attempts at play to legislatively rewrite existing policies to retroactively cover claims caused by COVID-19.  New York’s bill, which was introduced in the Assembly last week, provides:

Notwithstanding any provisions of law, rule or regulation to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, shall be construed to include among the covered perils under that policy, coverage for business interruption during a period of a declared state of emergency due to the coronavirus disease 2019 (COVID-19) pandemic.

The bill would affect all policies in effect on March 7, when New York declared its State of Emergency, and seeks to provide coverage even if the policy contains a virus exclusion.  The bill, if enacted into law, will face strong challenges from carriers under both the federal and state constitutions. Similar bills are being introduced in states throughout the country.

As the pandemic evolves, there will be substantial litigation filed under these business interruption insurance policies.  The courts will have to sort out when coverage will exist under different policy terms, endorsements and exclusions, and facts often unique to each insurer’s business operations.    

Joe DiBenedetto recently retired from Winston & Strawn LLP, after spending 46 years in its Manhattan office as a capital partner specializing in commercial litigation. He formed JDB Mediation LLC to further develop his mediation and arbitration practice, which is centered in Manhattan and its surrounding counties (including Westchester, Nassau, and Suffolk). Joe DiBenedetto’s experience, training, and other credentials are more fully described at