A basic premise in contract law is allocation of risk. Business-interruption insurance allows business owners to purchase protection against loss of income that occurs after a disaster. While individual policies differ, typical business interruption provisions cover losses related to physical damage. With COVID-19 sweeping the globe, business owners and insurance companies are engaged in a battle over whether this type of insurance covers closings due to the pandemic.
Insurance companies have argued that they are not liable for losses related to the novel coronavirus because the virus does not cause property damage. Restaurant owners – and other small businesses – alternatively argue that the virus damages the property by staying on surfaces. According to the World Health Organization, it is not certain how long the virus that causes COVID-19 survives on surfaces, but studies suggest that COVID-19 may persist on surfaces for up to several days. Business owners argue it is the type of property damage encompassed by these policies. Many of these businesses were also forced to close because of government orders.
An additional hurdle in contract law is that many provisions are ambiguous because parties cannot predict every eventuality. Some contracts have provisions that specifically deal with a virus or a pandemic. However, many do not. Even those that do may be ambiguous or incomplete. Most parties did not consider a shutdown of this nature when negotiating the terms of their agreements. Even if the parties considered issues related to communicable diseases, it is unlikely that they appreciated the possibility of a shutdown of this scope and magnitude. Who should bear the risk in that case?
Small business owners can also apply for Small Business Administration disaster grants of $10,000, and forgivable Paycheck Protection Program (PPP) Loans which let businesses with fewer than 500 employees seek government-guaranteed loans from banks and local lenders. While the policy behind the programs is admirable, applying for and receiving these loans is quite difficult.
Further reading:
The Ugly Legal Battle Over Restaurant Insurance Has Begun, The Eater, April 9, 2020, https://www.eater.com/2020/4/9/21214136/restaurant-business-interruption-insurance-lawsuits-coronavirus-coverage
National Law Review, April 14, 2020, https://www.natlawreview.com/article/update-business-interruption-insurance-time-covid-19