Restaurants, health clubs, stores, and many other businesses large and small have been forced to shut down because of the COVID-19 pandemic. Many businesses that are still open have seen their income fall off precipitously, as customers’ shopping habits dissipate due to social distancing.
Some of these businesses purchased business interruption insurance, which is designed to cover lost income from closures due to fires, floods, and other catastrophic events. But insurance companies have said that losses from the most catastrophic event imaginable—a global pandemic—are not covered by these insurance policies.
Litigation inevitably has followed. As an example, Thomas Keller, the legendary chef behind restaurants The French Laundry and Per Se, has sued the Hartford Fire Insurance Company, his insurer, to establish that insurance companies have to pay for COVID-19 losses.
The crisis rising as a result of these policies is being studied closely by scholars at the Rutgers Center for Risk and Responsibility, a Rutgers Law School institute that explores the ways in which society makes choices about risk, its proper allocation, and compensation for the harm caused when risks materialize.
Legislatures in New Jersey, New York, Ohio, and Massachusetts are considering bills to require business interruption to cover these losses, even retroactively. Insurance companies paying claims then could seek reimbursement from other insurance companies, with all policyholders ultimately paying the cost. Insurance industry groups have proposed federal solutions comparable to the 9/11 Victims Compensation Fund or the Terrorism Risk Insurance Act.
“Businesses faced with huge and unexpected losses naturally turn to their insurance for compensation,” says Jay Feinman, a distinguished professor at Rutgers Law School in Camden. “And legislators who are looking to help businesses out see insurance as a vehicle for doing so.”
“But, as is usually the case with insurance—things aren’t that simple,” adds Rutgers Law Professor Adam Scales.
Feinman and Scales, along with Rutgers Law Vice Dean and Professor Rick Swedloff, are nationally known insurance law experts and co-directors of the Rutgers Center for Risk and Responsibility, which hosts research programs and conferences on insurance and insurance law.
