Business Interruption Claims Due to the COVID-19 Pandemic
As the COVID-19 pandemic has spread across the United States, it has created new hurdles for many businesses and industries along the way. When, whether, and how to reopen businesses is one issue that has dominated news reports over the past few months.
According to a recent analysis presented in the Insurance Journal, one industry for which the effects of the pandemic remain to be seen is the insurance industry, to the extent that coverage has been sought for business interruption claims. According to this report, in comparison with other recent events that have been considered national catastrophes– including major weather events such as hurricanes – and during or after which business interruption claims have been filed, the COVID-19 pandemic is significant.
Mama Jo’s Inc. v. Sparta Insurance Co.
This week, as reported in Reuters, a recent unpublished decision by the United States Court of Appeals for the Eleventh Circuit may shed some light on how some courts may rule in cases that involve business insurance interruption claims, depending upon the language of the policy.
Mama Jo’s Inc. v. Sparta Insurance Co. involved a restaurant’s business interruption insurance claim that was asserted years before the COVID-19 pandemic took root in the United States. The claim had nothing to do with COVID-19 related business interruption or damage. Instead, in that case, a Florida waterfront restaurant sought to recover from its insurer for damages it sustained as a result of certain road construction, including cleaning (which also involved painting and related repairs) as well as lost business.
The insurer’s denial of the claim was essentially based on the argument that the insured did not suffer the “direct physical loss” required in order for coverage to be triggered. On this issue, the lower federal district court granted the insurer’s motion for summary judgment.
Two of the specific issues that the Court of Appeals considered on appeal were whether the district court, applying Florida law, erred by:
- concluding that “direct physical loss” requires a showing that the property is uninhabitable or unusable (so that requiring cleaning was not sufficient to trigger the policy), and/or
- requiring the restaurant to show that suspending its operations resulted from physical damage
After considering the applicable Florida law, the Court of Appeals affirmed the district court’s decision. The court decided that, under Florida law, if an item or structure merely needs cleaning, the insured has not suffered a loss that is direct and physical. Since the business income loss claim required the suspension of business operations be caused by direct physical loss or damage to property, the Court of Appeals held that the district court properly granted summary judgment.
If you would like to know more about the Court of Appeals’ decision in Mama Jo’s Inc. v. Sparta Insurance Co., or have questions about business interruption or other insurance, or other business considerations or concerns as a result of the COVID-19 pandemic, contact a Fort Lauderdale business lawyer at Sweeney Law.