It has been a rough year for small business owners. The COVID-19 pandemic has made customers skittish about shopping in person. State governments issued stay-at-home orders and forced many small businesses to shut their doors for months at a time. And even when businesses could reopen, they were often forced to reduce the number of customers they could serve at a time.
And when small business owners turned to their insurance companies for relief during the shutdowns? They often found it lacking, as insurers argued that business interruption policies don't cover losses related to shutdowns caused by viruses.
But what will 2021 bring when it comes to business liability insurance? Will state legislatures force insurers to provide financial relief to business owners still struggling with the pandemic and the resulting shutdown orders? Will a new presidential administration – or a second go-round with the current administration – bring changes to the protections that business liability insurance brings?
No one has a crystal ball. But after a year of upheaval, here's a peek at the challenges small business owners and insurers face when it comes to business liability insurance.
The business interruption dilemma
General business liability insurance offers business owners plenty of protection. Say a customer slips and falls while shopping at your store. If that customer sues you, your business liability policy will cover the costs of defending yourself and will pay out if you lose your court case and must pay up.
Say one of your employees falls off a ladder while working at a client's home. Your policy will cover that employee's medical costs. Say an employee is working offsite at a client's property and accidentally starts a fire or damages a home's front porch. Your insurance policy, again, will cover any costs your business would face to repair the damage.
Liability policies even protect you from copyright or defamation charges.
But a general liability policy doesn't help when a fire, lightning strike, vandalism or other disaster damages your business so severely that you must shut down temporarily. That's what business interruption insurance is for.
This type of insurance, which is usually sold as a rider or addition to an existing business policy, reimburses business owners for the money they've lost from having to shut down. If a fire destroys your restaurant or retail shop and you can't operate while you rebuild, business interruption insurance pays out to help you stay in business.
When governments ordered restaurants and retailers to shut their doors during the early days of the pandemic, many business owners turned to their business interruption insurance to serve as a financial safety net. That's when they discovered that business interruption policies usually don't cover business losses caused by a pandemic. Insurers argue that it's unaffordable to insure a pandemic, because so many of their business clients would need payouts at the same time.
This news, unsurprisingly, didn't make business owners happy. Many have since sued their insurance companies. At the same time, some state governments have introduced legislation that, if enacted, would force insurance companies to provide at least some financial relief to businesses that must shut down during a pandemic.
What do these actions mean for small business owners? That's difficult to say.
Business interruption lawsuits
The National Law Review in September published a report analyzing these lawsuits, reporting that hundreds of businesses had already sued insurance companies, arguing that their policies should cover losses that result from state and local closure orders during the pandemic.
The National Law Review says that there have already been more than 1,000 lawsuits filed across the nation. Insurers continue to argue that business interruption insurance only covers business losses from direct physical damage to property, such as from fires, earthquakes and hurricanes. Insurers say that their policies don't cover losses from business disruptions and shutdowns related to health emergencies. Insurers also point to the fact that many policies clearly state that they don't cover losses resulting from a virus.
The results of these legal actions so far? They've tended to favor insurers, according to the National Law Review.
For example, plaintiffs in late July filed two petitions to the Judicial Panel on Multidistrict Litigation to consolidate hundreds of business interruption cases pending in the federal courts. The panel on Aug. 12 denied both petitions. This means that the lawsuits will now be heard in the courts in which each of the complaints were filed.
The review story said that insurance companies have filed at least 18 motions to dismiss these cases. In some of these cases, businesses have argued that the presence of the virus on their property, which requires them to frequently sanitize and clean surfaces, is an example of direct physical harm. Other businesses argue that having to close their establishments is sufficient grounds for insurance relief.
According to the Law Review story, early decisions have favored insurers when businesses argue that they should be compensated because of the forced closures. Courts have agreed to dismiss these cases more often when plaintiffs make this argument.
Businesses have had better luck when they argue that the presence of COVID-19 on their property causes direct physical loss. The Law Review story cites a federal court that denied a motion from an insurance company to dismiss a case brought by a group of hair salons and restaurants. These plaintiffs argued that the presence of the virus on their business' surfaces is an example of direct harm and should be covered by business interruption insurance.
Cases such as this have not yet been resolved. But, the Law Review story suggests that business owners who want their lawsuits to at least receive a hearing will boost their odds by arguing that COVID-19 is causing direct damage to their properties. The report also suggests that business owners might lower their chances of fighting off motions to dismiss when they argue that they should be compensated because of the government-ordered shutdowns.
This is a distinction businesses might want to consider as they look toward 2021: Those who want to boost their chances of scoring financial relief from pandemic-related losses might need to focus any lawsuits on claims of physical damage, not on any losses they suffered because of a shutdown.
Protection from employee lawsuits?
Small business owners face another challenge as they reopen, both now and as 2021 arrives: Are they at increased risk of lawsuits from their own employees?
The fear is that business owners could be sued by their workers if these employees contract COVID-19 while on the job. This is a legitimate fear: Lawsuits filed by employees could devastate the finances of business owners.
There has been a movement among several states, though, to protect business owners from such lawsuits. Law firm Littler Mendelson during the summer published a report looking at some of these efforts. The report cites states such as Massachusetts, North Carolina, Oklahoma, Wyoming, Iowa, Louisiana, and Kansas, which have all enacted laws that limit the liability employers face if their workers should get infected with the coronavirus.
Expect more states to follow suit. In its report, Littler said that more than 12 other states were considering similar legislation.
In general, these laws protect employers if they are found to be acting in good faith and following state, federal and local guidelines when it comes to protecting their workers from COVID-19. The laws usually state that employers will lose this protection if they are found to have been intentionally or recklessly negligent.
The presidential election
The presidential election, of course, is once again making headlines. And while liability insurance isn't a top issue for most voters, it should be a concern for business owners.
In particular, business owners should be concerned about how likely it is that they will be held liable should their workers contract COVID-19 while working at their businesses.
It's true that many states – as mentioned above – are enacting protections for employers. But there has been a push at the federal level, too, for liability protection for small businesses.
Republicans have made liability protection a priority when debating any future COVID-19 relief packages. Sen. Mitch McConnell, R-KY, has said that he favors legal protections so that employers can reopen without the threat of an avalanche of lawsuits.
Democrats in the same negotiations have not dismissed this protection, but Senate Minority Leader Chuck Schumer, D-NY, has stated that U.S. residents are more worried about matters such as unemployment and being able to pay their mortgage or rent. Because of this, he said, Democrats are more interested in providing relief, such as extended unemployment benefits and, perhaps, another direct stimulus payment.
It's uncertain, of course, if businesses will receive federal protection. Negotiations over another round of COVID-19 relief are still ongoing in Congress, and it's uncertain if legislators will pass another stimulus bill before the Nov. 3 presidential election.
President Trump has called on Congress to pass another stimulus package, one that includes another check for U.S. residents. He also gave his support to a $1.5 trillion relief plan put forth by a bipartisan group of 50 lawmakers in the House of Representatives.
Again, though, debate over liability protections might derail any vote on a stimulus plan before the election, leaving business owners with plenty of uncertainty as they bring their employees back.
In the meantime, business owners should do what is necessary to protect themselves from potential employee lawsuits. This means following state and local guidelines regarding masks, social distancing measures, sanitation, and capacity limits. Businesses that flout these guidelines might find it more difficult to defend a lawsuit filed by an employee who has contracted COVID-19.