Civil Law

Like many lawyers with expertise in insurance coverage, I was immediately contacted after the pandemic hit by business owners – often restaurant and bar owners – about seeking business interruption coverage under their insurance policies. My usual conclusion was that you could at least submit a claim and see what happens, but that, unless you had particularly deep pockets and/or large losses, I didn’t suggest bringing suit. My advice was based on two points: first, that recovering insurance benefits under the facts of the losses and the coverage terms was going to be difficult and, second, the statute of limitations would allow them to wait and see how the case law shook out on the issue before making a decision.

Time would show that my advice was pretty good – most jurisdictions and courts have since found there to be no coverage under business interruption coverage (also known as business income insurance, in the same way and for the same reason insurers sell and consumers buy life insurance, not death insurance) for pandemic shutdown related losses. The big insurance story of December, however, was the North Carolina Supreme Court finding to the opposite, and holding that, at least with regard to policies that did not include an express exclusion for losses due to viruses, coverage does exist for such claims.

To me, this is almost an epistemological question or perhaps an etymological one, in the sense of determining what meaning should be assigned to the language used in the general insuring grants of business interruption coverage where, in truth, there was almost certainly never an actual meeting of the minds between insurers and insureds over the scope of that coverage and its application to an event as unexpected and unprecedented as the pandemic and its related shutdowns. Certainly insurers who issued such coverages with an express virus exclusion were anticipating such a risk, even if they could not have anticipated its exact parameters, and insureds or their brokers were on notice at the time of the purchase of the insurance that coverage for virus driven shutdowns was not something they should reasonably expect.

But the story is not necessarily the same with regard to policies that provided business interruption coverage but did not include a virus exclusion. It is probably not fair to assume that an insurer that left such an exclusion out was actively planning out what coverage it intended to sell for a virus driven pandemic, and I highly doubt most insureds ever even read that coverage – yet alone considered that question – at the time the policy was purchased. Most courts and most insurers have simply fallen back on the scope of the insuring grant itself, which doesn’t quite reach the events underlying the pandemic based shutdown and related losses, leading to the absence of coverage. But the language itself isn’t crystal clear in that regard, and there is room to argue over it – even if, in most courts, insurers have prevailed on the question.

This is where, I think, the general rules, standards and principles of contract interpretation – beyond just the usual application of interpretative cliches in coverage disputes such as those favoring insureds where language might be deemed ambiguous – have a role. In contract law, numerous interpretive doctrines, approaches to unclear contractual terms and rules for the use of extrinsic evidence exist that are used to determine the meaning of the contract where the language used by the contracting parties doesn’t sufficiently resolve the question. From both a practical and doctrinal perspective, insurance coverage disputes typically are not decided using the same approach or by use of these same interpretive tools and approaches.

Here, though, adopting and fully applying those same rules is likely the best way to conclude what the scope of the business interruption coverage really is or should be with regard to pandemic related closures, in circumstances where the policy lacks a virus exclusion. Full use of all the tools of contract interpretation, including close study of extrinsic evidence, would be the best way to reach as accurate as possible a conclusion as to whether business interruption coverage should, as a matter of contract interpretation, be extended to pandemic era shutdowns.

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