The Gathering Storm

The Gathering Storm Joan McGuire

Business interruption claims related to the COVID-19 pandemic are about to pick up in a big way. Results could be as unpredictable as the virus itself.


In September a quartet of Portland businesses – RingSide Steakhouse, Mississippi Studios, Polaris Hall and Revolution Hall – filed a lawsuit against Cincinnati Insurance Company in Multnomah County Circuit Court. The litigation arises from the insurance company’s denial of the four companies’ business interruption claims.

As the financial fallout from the COVID-19 pandemic drags on, restaurant, hospitality, retail and entertainment businesses have begun filing business interruption claims with insurance companies to recoup their losses.

While the exact language of what constitutes a business interruption varies by carrier, in general, insurers will reimburse a business for income lost due to the property being rendered unusable by an outside force.

For the four Portland companies, compensation for business lost because of COVID-19 will be crucial for survival. But widespread business interruption claims resulting from the pandemic could represent an existential threat to insurance companies.

“Claims are being denied universally. If an insurance company pays one claim, they have to pay all the claims. If they pay all the claims, they’re going to go out of business,” says Frank Weiss, partner at Tonkon Torp. While some policies have specific language relating to pandemics, most do not. “Insurers have no ‘Plan B’ except to deny everything.”



Weiss is confident a large amount of litigation concerning business interruption claims is inevitable. Across the country, the battle over business interruption claims has begun.  

Insurers have denied these claims largely on the grounds that property insurance only covers physical damage to the property. Policyholders and their legal teams argue COVID-19 has rendered their property unusable, which amounts to the same thing.

RELATED STORY: Insurers Push Back on Biz Interruption Insurance

Some of these cases have already been decided: some have sided with the policyholder, others with insurers. But because of Oregon’s frequent wildfires, experts think a precedent for state judges has already been set.

In 2016 the Oregon Shakespeare Festival won a legal battle with its insurance provider that hinged upon a similar line of reasoning. The festival’s insurer claimed losses incurred by wildfire smoke were not the result of damaged property, and therefore it was not required to pay out a business interruption claim. The court ruled that while wildfire smoke did not physically damage its property, it rendered the property unusable and the Oregon Shakespeare Festival was entitled to damages.



Weiss says that due to this standing legal precedent, business interruption cases due to COVID-19 could be decided similarly, although it is possible insurers might argue that unlike smoke, it is difficult to prove the virus was ever present in a particular facility.  

“A beauty salon will have a harder time proving the virus was on the property, but a casino won't,” he says. “If you’re a small company it’s not cost effective to fight this battle, so it’s going to be the bigger players paving the road, then the smaller businesses following. Once you have a few courts issuing decisions, the rules of the road will be established.”

Some insurers have clauses that allow for claims when business is shut down by civil authority, meaning policyholders could also argue the crowd-size restrictions put in place by the state entitles them to business interruption payout.  



Shiau Yen Chin-Dennis, managing partner at law firm K&L Gates in Portland, says one argument insurers might make is that shifting technological trends, not coronavirus, are responsible for some of the business interruptions.

For example, some may argue the virus has hastened the growing trend of people working from home, making office closures inevitable.

“If a business was already changing even before the pandemic hit, the case could be treated like a technological disruption,” says Chin-Dennis. “The thing about this pandemic is that it has accelerated already established trends.”

A federal solution could be on the horizon.

California Representative Mike Thompson introduced the Business Interruption Relief Act, which would reimburse insurers that voluntarily pay out business interruption claims. With more COVID-19 legislation sure to be on the horizon, Congress might address the difficult situation insurers find themselves in due to COVID-19.



Philip Guess, partner at K&L Gates, expects there will be plenty of business interruption claims in the wake of the COVID-19 pandemic, both between policyholders and insurance providers, and between businesses.

“I think we’re going to see a lot of suits based on supply chain disruptions: failure to provide services, failure to give supplies and deal litigation. Say someone was going to buy a business for half a billion dollars, now they see that business is suddenly worth two-thirds of what it was. They are going to want to get out of that.”

He also expects there to be a large amount of fraud litigation, as 12 years of economic growth may have masked criminal behavior. He also foresees an uptick in bankruptcy litigation due to the economic downturn.

“We’re in the ramp-up phase right now,” says Guess.

Outcomes of these cases could vary wildly. A strong precedent could also be established, causing most of these business interruption claims to be settled similarly.

And it is unlikely, but possible, a case like the one in Portland could make its way to the Supreme Court.


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