The coronavirus/COVID-19 has forced many business owners to go to battle with their insurance companies over coverage for business interruption claims while others are trying to amend company contracts under the legal term known as force majeure.
As often happens, the language used in individual insurance policies and business contracts will determine the outcome regardless of whether they were signed before the coronavirus became part of our daily lives.
COVID-19 Business Interruption Insurance Claims
Many restaurants have filed lawsuits against their insurers for denying or potentially attempting to deny business interruption coverage based on policy language. Some of the earliest business interruption lawsuits included:
One hurdle for restaurants and other companies that are considering business interruption lawsuits is that many insurance policies have been updated in recent years to include clauses that limit coverage for viruses and bacteria. Insurers began adding this language following the SARS and EBOLA outbreaks. Another obstacle is that many policies contain language that is tied solely to property damage.
Fortunately, there are potentially ways to approach such barriers. One example that may apply is if a company is not able to acquire all the supplies necessary to sell to customers and maintain normal business operations.
In this instance, the company may be able to seek coverage under its commercial property insurance if the policy includes contingent business interruption coverage, and the supply shortage can be tied to the coronavirus.
This type of coverage costs extra, but many business owners agreed to the additional charge when they signed their policy, even though they might not be able to decipher it when reading the language themselves. That’s where an experienced lawyer can help.
Force Majeure and Coronavirus
In the legal world, a force majeure clause allows the parties to a contract to be relieved of their contractual obligations if doing so is prevented by unforeseeable circumstances beyond their control. As with insurance policies, the language of each contract will eventually determine to what extent each party is legally required to honor their obligations.
Courts typically determine when force majeure applies based on whether the event is covered in the contract language, if it could have been predicted or otherwise avoided or managed, and whether honoring the contract is actually impossible or simply financially unfeasible.
If a contract includes a force majeure option for viruses or pandemics, then it is hard to imagine there would be an issue. However, since many contractual agreements do not anticipate viruses/pandemics, it will be up to a judge to decide whether force majeure should apply.
There is a lot of current uncertainty about when force majeure can be applied based on the different ways contracts have been impacted by government-ordered shutdowns.
What is certain is that any business owner who thinks they may be unable to honor an existing contract should talk to an experienced contract lawyer. One of the first things a reasonable attorney will recommend is to notify the other contract party why your company or may not be able to honor the contract terms and what you are doing or have done to find a solution.
Be Prepared for COVID-19 Legal Issues
Above are just a few of the legal scenarios facing today’s business world in the wake of the coronavirus/COVID-19. The full extent of how this pandemic will impact business interruption claims and a company’s ability to effectively invoke force majeure may not be known for many weeks or months.
That is why it is so important for companies to get in front of these issues now by reviewing their insurance policies and business contracts with someone who knows the law. The Law Offices of Brad Jackson has handled many similar cases and we invite you to contact us today for more information about how we may be able to help you.