Lawyers have filed a motion asking a panel of federal judges to centralize lawsuits involving small businesses in the U.S. who were denied “business interruption” insurance coverage due to the COVID-19 pandemic.
Around a dozen lawsuits have been filed against insurance companies by restaurants, bars, dive shops, casino-operating tribes, movie theaters, and other business owners.
Lawyers asked the U.S. Judicial Panel on Multidistrict Litigation to centralize all coronavirus insurance lawsuits under a single judge in the Eastern District of Pennsylvania for coordination.
This type of mass-tort is called a Multidistrict Litigation (MDL), similar to a class action — but each lawsuit remains independent.
Many insurance companies specifically excluded coverage for viral outbreaks after the SARS outbreak in 2002 and 2003.
However, in the case of COVID-19, lawyers are arguing that “business interruptions” are not resulting from the virus itself, but rather government orders to stay at home, close schools, and banning non-essential activities.
“This issue – whether business interruption insurance policies will cover losses incurred by businesses forced to shutter their business as a result of the Governmental Orders – is one of national importance and great significance to the ultimate survival of many businesses.”
Insurance companies most at risk of these lawsuits include Travelers, Chubb, American International Group (AIG), and Hartford (HIG).
These companies have strong balance sheets at the moment. Overall, the Property & Casualty Insurance (P&C) industry is sitting on about $860 billion in capital and surplus, making it a good target for lawsuits.
Even so, COVID-19 claims could potentially wipe out this surplus, leaving nothing to pay for other claims.
Business interruption losses for U.S. small businesses due to coronavirus and government-ordered lockdowns are estimated at$220-$383 billion per month, according to the insurance industry.