When a natural disaster of any kind starts to impact businesses, some business owners rely on business interruption coverage to manage their losses. With the COVID-19 pandemic, however, many business owners are discovering their coverage doesn’t apply to this entirely new situation. As a result, COVID-related insurance coverage lawsuits have surpassed 700.
Insurance law experts believe the number of insurance coverage lawsuits seeking coverage for coronavirus-related interruptions will continue to rise. Tom Baker, the William Maul Measey professor at the University of Pennsylvania, analyzed current numbers and compared them to past figures to come to the conclusion that the current lawsuits exceed the norm by two to three times.
In order to understand how the number of lawsuits has toppled 700, let’s take at business interruption coverage and how experts have been tracking insurance coverage litigation.
The Purpose of Business Interruption Coverage
Traditionally, business interruption insurance helps replace lost income and cover additional expenses when a business is affected by a covered disaster. Sometimes referred to as business income coverage, this type of insurance is a part of a business owner’s insurance policy.
In regard to lost income, business interruption insurance will take care of the expenses, minus those that have been already paid, for destroyed merchandise. Pre-loss earnings are used as a basis for reimbursement. An example of extra expenses would be if a business needed to temporarily relocate because of a fire. The money could be used to cover the cost of rent at a temporary location until the repairs are made to the old location or a new, permanent one is found.
In the past, business interruption insurance has been used after hurricanes, fires, and other types of natural disasters. Unfortunately, many business owners are now realizing the current pandemic the world is facing is not included in their policies.
Tracking Insurance Coverage Litigation
As mentioned, Tom Baker has been tracking the insurance coverage litigation system. He used legal analytics software that analyzed the federal docket system. Currently, business interruption lawsuits are equal to more than ten years’ worth of major natural disaster-related lawsuits combined.
To understand the significant increase in lawsuits, let’s take a look at claims that were filed for past natural disasters. For example, in 2008, after Hurricane Ike, claims rose to less than 100 after the third quarter. A year later, cases had risen to roughly 150. For hurricanes Sandy, Irma, and Harvey, which occurred between 2012 and 2017, lawsuits were less than 100 in similar time frames to that of the COVID-19 pandemic.
While storm-related insurance lawsuits are generally confined to the specific areas where the storm caused damage, the widespread COVID-19-driven business insurance lawsuits cover the entire United States. In regard to defendants, several national and multinational insurance companies have been included.
Baker presented his findings via a webinar. Based on a COVID Coverage Litigation Tracker (CCLT), it indicated that as of July 21 694 total COVID-19 business interruption insurance coverage lawsuits had been filed. On the day of the webinar, however, Baker discovered an additional 69 new cases.
During the webinar, he discussed how the nature of the coverage disputes currently is different from those in the past. For hurricanes, coverage disputes are often centered on questions regarding what share of the loss the insurance company should pick up, versus the federal flood program. With COVID-19, however, the insurance companies have largely decided they are not paying.
Baker also believes litigation is moving faster because of how the insurance companies are handling claims. Instead of attempting to come to some type of agreement through negotiations, companies are outright denying claims.
Chris Cheatham, CEO and co-founder of insurtech RiskGenius, has also been using the University of Pennsylvania tracker to put together an analysis of his own. In comparing the COVID lawsuit count to those following each of the hurricanes mentioned above individually, the numbers are almost five times as high.
In addition to that, Cheatham, and Bryan Wilson, an MIT Fellow, have been working on their own analysis of trends in COVID litigations. Through a series of articles, the two have concluded that 69% of the COVID insurance claims have been filed in just nine states. Their analysis shows a correlation between COVID infection rates and the number of insurance coverage lawsuits filed.
The Future of Insurance Coverage Lawsuits
With an unprecedented situation like the coronavirus pandemic, there is no particular way to handle insurance claims and associated lawsuits. In an effort to transfer all of the cases to one federal court, there’s a chance an MDL procedure could be enacted. Currently, three teams of lawyers in Pennsylvania, Florida, and Illinois are looking to have lawsuits consolidated.
MDL, which stands for multidistrict litigation, has traditionally be used for product liability claims. If lawsuits are included in an MDL, all court proceedings will be taken care of federally, except for the trial. Cases go back to the court when they were originally filed for trial.
COVID-related lawsuits are expected to continue rising. In fact, Baker’s analysis, which shows case counts at intervals of six months, one to two years, two to three years, and over three years, predicts there are many more lawsuits to come.
Protect Your Business With Thomas Law Offices
In the event your business is struggling amid the COVID-19 pandemic and you’re considering filing a small business insurance dispute, Thomas Law Offices can help. We’ll review your legal rights and options, determine how your level of insurance coverage impacts your recovery, and help you determine how best to proceed to protect your business and financial future. Contact us today for more information.