No End in Sight: Business Interruption Insurance Claims in New York After the Second COVID-19 Surge

ABSTRACT

[...]this Note supports the use of a co/reinsurance policy that protects insurers and insured businesses alike. A. The Current State of the COVID-19 Crisis At the time of writing, the impacts and effects of COVID-19 are ongoing.6 However, the pandemic's effects on New York, particularly New York City (NYC), cannot be overstated.7 While the impacts of COVID-19 are diffuse and variable, almost every effect arising from this pandemic implicates the insurance industry in one way or another, and early estimates indicate insurance claims will total in the billions of dollars.8 In an effort to shore up costs for businesses and the resulting employment impacts of the pandemic, the United States Federal Government (USFG) passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act).9 While the CARES Act did not explicitly target the insurance industry for relief, additional pieces of legislation were introduced that could have impacted the industry early on.10 At the state level, Governor Cuomo officially declared a Disaster Emergency in New York on March 7, 2020.11 As of December 2020, there have been 87 continuations and amendments to the declared Disaster Emergency.12 Of the various measures Governor Cuomo enacted, the most significant for the present study are the non-essential business closure and stay-at-home orders, which ordered many business closures and obliged the population to avoid leaving their homes.13 By September 2020, New York had already seen 6,000 businesses close and a 40% increase in bankruptcy filings.14 In May 2020, Governor Cuomo announced a phased reopening scheme, New York Forward, in which restrictions were linked to local infection rates.15 As New York and the rest of the country began to emerge from what has been the worst of the pandemic so far, hundreds of businesses looked to their insurance policies to mitigate their losses, many insurance companies rejected their claims, and litigation ensued.16 New York courts construe insurance coverage for business losses stringently, and the U.S. District Court for the Southern District of New York has already rejected a business policyholder's request for an injunction, pending the lawsuit result, that would require the insurer to pay most of the amount claimed.17 While the suits are just beginning, the insurance industry will likely see changes of the scale it has not seen since the 9/11 terrorist attacks.18 Estimates put the total national cost of 9/11 between $50 and $100 billion.19 By contrast, the COVID-19 pandemic is estimated to cost the nation tens of trillions of dollars.20 To understand where the legal environment is headed, it is first necessary to understand the current legal environment surrounding BI insurance in New York. "22 Typically, BI is not a separate insurance policy, but rather BI is a supplemental endorsement to a policyholder's property insurance.23 Unlike standard general liability insurance policies, BI supplements do not have standardized language and often contain language that is unique to the specific insurer and industry.24 As a part of commercial property insurance, BI is offered either as an all-risk policy or a named-perils policy.25 Under an all-risk policy, the policyholder may recover for all losses resulting from any cause barring their express exclusion in the policy.26 Alternatively, a named-peril policy only covers a policyholder's losses for specific causes of loss expressly named in the policy.27 Although BI contains the word "interruption," more often than not, the interruption must precipitate from actual property damage or loss.28 1. The second element, loss of covered property, refers to physical losses of, or damage to, commercial or personal property within or touching commercial real estate listed in the policy.35 This element typically addresses what commercial or personal "property" is covered by the terms of the policy, as property is increasingly digital or otherwise intangible by its nature.36 Barring indeterminate language or language to the contrary, New York typically requires physical property damage.37 This element will be of particular importance, as many all-risk policies explicitly exclude viral or bacterial causes of loss, many named peril policies do not name pandemics, and in any event, physical damage may be difficult if not impossible to prove for COVID-19-related business losses.38 While causal links between each element are a requirement, the third element most expressly requires causal analysis to prove the cause of the covered property loss results in an interruption of business.39 Beyond the issue of proving the causal relationship between the damaged and/or lost property and interruption of business, policyholders will frequently be required to prove that the level of interruption experienced rises to the level described by the policy's language.40 As a result, BI can come off as a misnomer because business is