Business Income Insurance Update: Not All Policies Have A Virus Exclusion

As states continue to limit business activities in an effort to flatten the curve, there has been a steady increase in insureds filing lawsuits against insurance carriers for loss of business income caused in some form or another by the Coronavirus. As we’ve previously discussed, many cases that have been filed allege that their insurance policies do not contain a Virus Exclusion. Interestingly, a recently filed case appears to involve at least one insurance company which offered a policy that covered business owners for losses caused by a pandemic.

SCGM v. Lloyds of London in Texas. Texas theater and restaurant owner, SCGM Inc., filed suit against Lloyds of London after it denied a claim for lost business income following the shutdown of operations by order of Texas authorities. On March 17, Texas ordered that restaurants in the Houston area could offer only take out service and on March 19 more severe restrictions were imposed statewide on public gatherings to slow the spread of the virus. SCGM complied with the orders and shut down each of its locations. According to the Complaint filed in the United States District Court, SCGM alleges that the Lloyd’s policy it purchased contained a “Pandemic Event Endorsement” to provide coverage for insureds who experience damages from business interruption during a pandemic. SCGM closed its businesses on March 17 and notified Lloyd’s of its claim on March 18.  On the same day, Lloyd’s denied coverage stating that COVID-19 was not, “…covered under the Pandemic Event Endorsement as it is not a named disease on that endorsement.”  Court documents state that the endorsement covers 25 named diseases, and their mutations and variations, ranging from avian flu to zika, and includes “Severe Acute Respiratory Syndrome-associated Coronavirus (SARS-CoV) disease.” The suit alleges that SARS-CoV-2 is the causative virus for the Covid-19 disease implicated in the current Coronavirus pandemic – an issue that will likely be resolved by medical experts at trial.

It is likely that Lloyd’s offered the Pandemic Event Endorsement to other policyholders across the country and we continue to investigate if other carriers offered similar coverage. If you have a Property Insurance policy with a Business Income or Business Interruption coverage part, we urge you to submit a claim to your carrier and to carefully review your policy.

Legislative Update. Pennsylvania has now joined New Jersey, New York, Ohio and Massachusetts in introducing bills to override the Virus Exclusion in Business Income insurance policies and compel insurance companies to retroactively pay claims for COVID-19-related business losses. A bipartisan group of 37 state legislators introduced House Bill 2372 which would require insurance companies to cover for business interruption due to the global pandemic. Similar to bills introduced in the other states, it would apply to businesses with fewer than 100 full-time employees. The bill has been referred to the Pennsylvania House of Representatives Insurance Committee. As with the other bills, the insurance industry maintains that any attempt to compel coverage for risks their members did not undertake would not only be an unconstitutional interference with contract, but would threaten the carriers solvency.

We will continue to follow all of the legislative efforts to help businesses deal with the losses incurred due to this global pandemic.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.