Business Interruption Insurance in the COVID-19 Era

By: Erik S. Mroz

With many businesses temporarily closed or operating at significantly reduced capacity, companies large and small are trying to figure out how to pay their bills.   It is no surprise then that we are seeing a significant uptick in the number of business interruption insurance claims both nationwide and in Indiana.  The stakes are huge for both policyholders and insurers and we predict that widespread litigation will follow. 

Although different policies use different language, a typical business interruption clause looks something like this:

We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.”  The suspension must be caused by the direct physical loss or damage to the property…

The question is whether business losses caused by COVID-19 or the stay-in-place orders issued by both the Governor and local authorities trigger business interruption coverage.  Indiana law offers little guidance on the subject and there have been no rulings on COVID-19 claims in other states.  It is far too early to tell. 

That said, there are some analogous cases from outside Indiana that may offer guidance.  For example, in past rulings, a majority of jurisdictions have required that an insured suffer actual physical damage to its property in order to trigger coverage.  In those jurisdictions, mere “loss of use” may not be enough to recover under the policy.  On the other hand, a minority of jurisdictions have allowed “loss of use” claims to proceed in certain circumstances.  While Indiana is typically viewed as a friendly state for policyholders, it is unknown whether Indiana will adopt the majority view, the minority view, or blaze its own unique trail.

Insurers, insureds, and courts will also need to focus on the application of certain policy exclusions.  For example, since the 2003 SARS outbreak, some insurers (but not all) have added specific exclusions for losses sustained from viruses and communicable diseases.  It is believed that 50%-80% of policies in the U.S. contain such exclusions.  Even then, the exclusions need to be considered within the policy as a whole.

In addition, many policies include civil authority provisions that cover certain situations when governments order a business to shut down.  It is important for both policyholders and insurers to know exactly what is in their policies before jumping to any conclusions.

With large sections of the country on lock-down, and with litigation starting to flare up, five states (New York, New Jersey, Massachusetts, Ohio, and Louisiana) and at least one municipality (Dallas) are attempting to use legislation to force insurers to cover business interruption losses from COVID-19.  It is likely that these enactments will be challenged on constitutional grounds.

There is also a call for Congress to act.  Recently, Risk Management Professor Zach Finn of Butler University (Indianapolis) drafted a federal Pandemic Risk Insurance Act (PRIA) to amend the Terrorism Risk Insurance Act (TRIA) so that it provides coverage for pandemics and the perils of viruses, communicable diseases, quarantines, government ordered repatriations, and border closings.  The draft was presented to Congress.  It would allow businesses to buy coverage through private insurers with a federally funded backstop.  Whether Professor Finn’s plan, or something similar, will be adopted is unknown.  However, given the new reality we find ourselves in, it is probably safe to conclude that there will be a heightened interest in pandemic risk management and insurance products going forward.

If you have additional questions, please contact your DSV attorney or Erik S. Mroz at

***The information contained on this website is for informational purposes and is not intended as formal legal advice and cannot be relied upon as such.  No attorney client relationship is established or intended as a result of the information contained on this website.***