Business Interruption Insurance Litigation: How to Prepare
Businesses around the globe have been affected by the COVID-19 pandemic. For some, mandatory closures or limitations on services designed to mitigate the risk of spreading the disease have been particularly difficult from a financial standpoint. Commercial insurance policies often include business interruption coverage that pays the insured a portion of lost income and extra expenses when a covered loss occurs.
Insurance claims related to business interruption coverage have, not surprisingly, risen over the past several months. In most cases, insurers are denying claims on the basis that interruptions due to viral or bacterial infections are specifically excluded in the policy documents. Arguing that financial losses stemmed from governmental closure regulations, that contamination caused direct physical losses, or that the insurer acted in bad faith, many businesses have filed single-plaintiff suits or joined in class-action litigation against insurers, demanding payment.
If your organization is involved in business interruption litigation, include the following steps in your preparation efforts:
- Examine the policy. Review the insurance policy carefully, with an eye toward terms and conditions and “Acts of Authority” clauses. Review the terms to determine whether the policy covers viruses and pandemics, or whether these are identified in the section detailing policy exclusions.
- Understand state-specific insurance laws. Understand how state insurance regulations define insurance companies’ duty of good faith and fair dealing and duty to investigate claims. In general, insurers must investigate and evaluate claims and supporting documents. An insurer that denies claims outright, without any investigatory efforts, may be liable under a bad faith insurance claim.
- Determine the amount of the claimant’s loss. Business interruption coverage must be objective and supported by evidence. Claimed income losses should correlate to business forecasts prepared before the revenue loss occurred. If the insurance policy also includes coverage for extra expenses attributable to the revenue loss, these must be itemized and supported.
- Gather documentation of notices given. Review documentation showing that the policy’s notice and proof of loss provisions were followed as required. Documenting that the insured met their obligations under the policy can support the claimant’s position in business interruption litigation.
At Baer Reed, we provide a range of legal and business services including litigation support to law firms and corporations around the world. To learn more, contact us today.
- On August 31, 2020
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