This past spring, some businesses across the nation were shuttered by local and government mandates as they were considered “non-essential” businesses.” Bars, salons, retail establishments, and any business that was not otherwise deemed as “essential” was closed. Exceptions included businesses like grocery stores, pharmacies, and “essential” health facilities. The shuttered businesses, their owners, and employees were left without the revenue they depend on to survive. These businesses made a common decision to turn to their insurance brokers and insurance carriers for business interruption coverage.
Expectation of Coverage
While many business operations and commercial policies have business interruption coverage, the language of the policy often requires a specific occurrence to trigger the application of that coverage. Possible occurrences include physical loss or damage to a covered property that arises out of a “covered peril” and results in the suspension of the business’ operations. The specific language involved is the definition of a “covered peril.” After the SARS pandemic, insurance companies added a virus exclusion to their policies to address the potential financial impact an epidemic can have on the insurance industry and the economy. Unfortunately, this leaves many businesses unable to recover any of the heavy financial losses they incurred as a result of the COVID-19 pandemic.
Curious to know how COVID-19 has changed the insurance industry? Learn more in this blog.
The widespread loss of revenue across multiple lines of business and multiple states led to a barrage of lawsuits to challenge the denial of these COVID claims. Gavrilides Management Company et al. v. Michigan Insurance Co. was one such lawsuit. This case was heard in July of 2020, and the presiding judge ruled in favor of the insurance company, upholding its coverage denial. This lawsuit ruling stated that there was no trigger of the standard policy language requiring a direct physical loss or damage to property, thereby affirming denial of coverage under the terms of the policy.
Other insurance company lawsuits include doctors who lost revenue for canceled elective surgeries, retail stores’ loss of income due to lack of physical in-store traffic, salons and barber shops, as well as various hospitality businesses that rely on travel and tourism.
In light of these lawsuits and the potential for creative solutions for insurance recovery, insurance brokers and agents may be next in line for desperate business owners. In cases brought against an agent or broker, businesses may assert a complaint of insurance companies and brokers collecting premiums with no intent to provide coverage, breach of contract, or individual liability against insurance brokers.
Risk to Brokers
Insurance brokers may need to be wary of allegations or assertions that the broker is liable for providing adequate coverage and procuring, on behalf of the insured, the appropriate coverage to protect the business from loss. In this argument, the insured asserts that the duty of care applies to the broker to advise the insured of policy coverage that would protect the insured in any unforeseen event.
The COVID-19 pandemic was by all accounts an unforeseen event. However, the businesses which were shut down or affected by the pandemic vary significantly between the services provided by the business and the states in which the businesses operated. Brokers may now face liability lawsuits in an argument made by creative plaintiff attorneys that the broker or agent failed to offer and write coverage for their customers.
Error and Omissions carriers report seeing claims made and agents named in lawsuits with insurance carriers, amid the denials of coverage from insurance carriers. One such case in Texas has already been dismissed, but more cases are pending. Susan Taylor Wall, defense counsel with Gordon & Rees, serves as defense counsel for Swiss Re and recommends that agents and brokers not become involved in disputes in coverage. Wall recommends that agents and brokers not discuss coverage after a claim has been filed.
The application of coverage will be decided by the insurance company, if an agent or broker makes an oral or written promise of coverage, then the agency may be held liable for this coverage.
Brokers who are concerned about the risk of lawsuits in the wake of COVID-19 can communicate with their E&O carrier for tips on risk management and how best to protect their agency from liability exposure for these claims.