How the US Dealt with COVID – 19 Related Business Insurance Claims

According to a recently published research paper on Social Science Research Network (SSRN), early estimates show that small to medium businesses are already losing between $255 billion to $431 billion a month, and more than 44 million workers have lost their jobs in this time in the US. This is the time that people have turned to their business interruption and/or civil authority insurance policies for some succor against this disaster.

What Are Business Interruption and Civil Authority Insurance Coverage?

Business Interruption and Civil Authority covers are a part of Commercial General Liability insurance policies.

Business Interruption insurance covers the profits a business may lose due to an interruption in regular business operations.

Civil Authority insurance covers losses suffered by a business because of government or military mandates because of which operations and profits are impacted.

Challenges in Claiming Business Interruption Insurance

Despite having Business Interruption and/or Civil Authority coverage, most businesses have been denied their claims by insurance companies across the country. This has led to more than 1,000 lawsuits (including numerous class action suits) being filed against insurance companies from March 2020. The claimants have protested that the insurers have denied their claims in bad faith that their claims have not been investigated properly and have been unfairly denied.

But why have insurance companies been denying such insurance claims? According to, a leading media company in the US, insurance providers have contested these claims because the COVID-19 pandemic as well as the government-mandated shutdowns are not covered by such insurance policies. They contest that the businesses were closed to stop the spread of the coronavirus by limiting human interaction and this did not qualify as damage or loss to property.

Furthermore, the insurance companies have stated that the government-mandated shutdown has led to the greatest domestic and global economic loss in history and it is not a loss that insurers in the private sector that shoulder alone.

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This stance has been contested not just by industry and business leaders and law firms, but also by many state governments in the country. Here are some of the steps that the governments – both state and federal – are taking to help the businesses get their claims.

  • Consolidation of Cases Being Filed Against Insurance Companies

Many plaintiffs are looking at utilizing the Multi-District Litigation clause to consolidate all lawsuits into a single forum. However, this effort is being contested by insurance companies. Their reason is that each company’s insurance policy is different, as each claimant’s case also needs to be assessed individually.

The hearings for these efforts are still continuing and no consensus has been reached yet.

  • State Legislation

Because of the massive impact of the COVID-19 pandemic, many of the businesses have requested their governments to step in and help resolve this issue.

To address this problem, state legislators in numerous states (South Carolina, Pennsylvania, Louisiana, New York, Massachusetts, Ohio, New Jersey, etc.) have proposed legislations that will compel insurance companies to either permanently or temporarily honor insurance claims for business interruption due to the coronavirus.

These legislations focus on insured small businesses that have less than 150 employees.

The legislators in many off the states have also acknowledged the plight of the insurance companies and have permitted them to seek reimbursement from the state governments to recoup their losses.

The challenge to these legislations is that there are Constitutional limitations that do not allow governments (state or federal) to interfere in contracts between private companies and their clients.

  • Federal Legislation

At the Federal level, the US House of Representatives have proposed legislation called the Business Interruption Insurance Coverage Act of 2020. If this new legislation is enacted, then insurance companies would be forced to pay out the claims of the insured businesses based on their coverage.

However, this legislation is still in its formative stage, and with the upcoming November elections, a consensus on this bill would be difficult – if not impossible – to achieve.


The debate on whether these business insurance claims should be paid out rages on that this time. However, the expectation is that once some of the disputes have been settled in court, the insurance companies will have to – to some degree – honor these insurance claims.