Business interruption insurance is typically intended to compensate the insured party for income loss resulting from cessation of operations, usually during a period of time used to repair or restore physical damage to the covered property. But what happens when the income loss is due to a pandemic sweeping the nation? Courts across the U.S., including here in the Midwest, are in the process of answering that very question.
The COVID-19 pandemic forced the closure of businesses across the nation as social distancing requirements and capacity limits were imposed, along with other safety protocols that limited business operations. Many insurance policies that cover business interruption included pandemic or virus exclusions, as insurance generally is not intended to cover such widespread losses. However, many policies did not, and over 1,700 lawsuits have been filed by businesses whose insurers denied their claims. 
According to the University of Pennsylvania Carey Law School’s tracker, most federal judges appear to be on the side of insurers. However, there is a bellwether case moving forward in the Midwest that insurers and small businesses alike should keep their eyes on— In re: Society Insurance Co. COVID-19 Business Interruption Protection Insurance Litigation, MDL No. 2964, 2021 WL 679109 (N.D. Ill. Feb. 22, 2021).
In February of 2021, the U.S. District Court for the Northern District of Illinois denied an insurance company’s motion to dismiss three “bellwether” lawsuits filed by hospitality businesses that were denied coverage for revenue lost due to COVID-19 public health orders. None of the three insurance policies at issue contained a virus exclusion. The insurance company claimed the policy clearly did not intend to cover government closure orders as a cause of covered loss because coverage was restricted to a “Period of Restoration” which ends when the affected property is “repaired, rebuilt, or replaced”.
This argument was not convincing enough, as the Court found that the “Period of Restoration” describes a time period during which there is coverage and is not an explicit definition of coverage. The Court did find that there was no coverage under the civil authority, contamination, and sue and labor provisions of the policies; but the issue of the scope of what qualifies as “direct physical loss” remains genuinely in dispute.
Since February (2021), the insurance company has attempted to appeal the ruling which was subsequently denied. In August, it filed a motion asking the Court to toss all bad faith claims against it; stating that it did not act in bad faith by issuing widespread denials because each coverage decision was based on the specifics of the individual claim. As of the writing of this article, the judge has not yet ruled on this motion.
Arnett Law Group will be keeping a close eye on how this case develops and will provide relevant updates as needed. Please feel free to reach out to one of our attorneys at 312.561.5660 if you are a small business or insurance company that has any questions about business interruption litigation.
 Business Interruptions and Pandemics. NAIC. https://content.naic.org/sites/default/files/cipr-brief-business-interruption-insurance-pandemics.pdf
 Legal Fight Over COVID-19 Insurance Coverage Heads to Appellate Courts. https://www.law.com/2021/05/10/legal-fight-over-covid-19-insurance-coverage-heads-to-appellate-courts/
 Judge Rules in Favor of 3 Policyholders with COVID-19 Claims in Consolidated Case. https://www.claimsjournal.com/news/national/2021/02/24/302197.htm
 Society Asks Judge to Toss Bad Faith Claims in Virus MDL. https://www.law360.com/articles/1415617