Business Interruption and the Impact on Insurance | swarms

Three JAMS neutrals share their thoughts on how COVID-19 has affected the insurance industry

Few industries have evaded the effects of the COVID-19 pandemic. But for the insurance industry, the effects were twofold. For one thing, COVID prevented insurance companies from doing business as usual. On the other hand, it forced those same companies, which were struggling to adapt to a remote work model, to manage an avalanche of claims related to other companies’ ability to do business. “All the businesses that had to close went to their insurance, and if their business was affected, they probably filed a business interruption claim,” says JAMS neutral Cassandra Franklin. As a result, says Franklin, “an industry that was already understaffed found itself in a position where it had to work even harder.”

To complicate matters, business interruption coverage is usually attached to the customer’s property policy, and any loss associated with a business interruption must be due to physical loss or damage to the customer’s property. And with COVID, “There was no physical loss or damage,” says JAMS neutral Rebekah Ratliff. So while policyholders argued that they had lost the use of their physical premises and therefore should be eligible for damages, from the insurance industry’s perspective, “there was no coverage for that.” As it happens, says Ratliff, “The courts have agreed. There have been thousands of these cases litigated in the United States, and in almost all of them, the court sided with the insurance company.” Says Franklin regarding business interruption coverage for COVID-related losses, “It’s been a really rough road for policyholders.”

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