COVID-19 is exacting not only a physical toll, but also an economic one.  Businesses around the world are incurring losses, and in some cases are seeking recovery from insurers and other parties.  To the extent coverage and/or liability are established, attainment of relief may depend on claimants’ ability not only to quantify losses, but also to demonstrate the cause of loss.

Injured businesses appear so far to be pursuing at least two paths to recovery—business interruption insurance, and liability of other parties.  COVID-19 itself and related government-mandated social distancing, lockdowns, and other measures are causing what many businesses—especially restaurants, hospitality, sports, etc.—would say is the definition of business interruption.

Many insurers, though, added exclusions to business interruption policies following the SARS outbreak in 2002-2003 and Ebola in 2014 for losses caused by viruses or bacteria.¹  Some business interruption claimants are focusing on how their loss fits within policy language, such as whether contaminated surfaces constitute physical damage in the context of a business interruption policy.²  In other cases, existing policy language may be less relevant, as some state governments are considering simply mandating that COVID-19 losses be covered.³  One possible outcome may be for governments to use insurers to assess and pay losses and then allow insurers to seek reimbursement from government,^4,5 similar to the way the Small Business Administration is relying on banks to execute the Paycheck Protection Program.

Other businesses facing losses may seek recovery directly from government.  For instance, a manufacturer of handbells and handchimes and its employees recently filed a class action lawsuit against the Governor and Secretary of Health of Pennsylvania, claiming that their issuance of COVID-19 closure orders "deprived Business Class Members of all economically beneficial use of their Property and deprived Employee Class Members of their livelihoods for an undefined period."⁶

Insurance companies and governments are not the only parties from whom businesses have sought relief.  A Pittsburgh retail shopping center operator has sued its loan servicers in federal court over a "cash sweep" that it alleges would divert tenant rent payments away from the plaintiff for the benefit of the defendants and, "in the midst of a global pandemic and financial crisis," put the shopping center "in jeopardy of failing … due solely to the draconian and punitive actions by [the loan servicers]."⁷

Parties raising such claims will want to be thoughtful, not only in how they quantify the loss, but also in how they demonstrate the cause of loss.  One simple approach to quantifying loss is to compare the damaged party’s performance before the precipitating event to its performance after that event.  In such a "before-and-after" analysis, one might assume that, but for the damaging event, the damaged party would have performed as it had in the past.  The difference between "but-for" performance and actual performance is the loss.  Although such an approach may appear to suffice, further analysis is typically warranted.

Such further analysis typically involves considering potential alternative (e.g., non-COVID-19-related or non-government order-related) causes of loss.  The nature of COVID-19 and related government orders may render that task more complex than in other cases.  For instance, to assess the impact of COVID-19 disruption, it may be desirable to isolate the impact of the immediate cause from macroeconomic and other effects, such as changes in demand, changes in supply chain, impact of credit market changes, and changes in competitive landscape.  These factors may need to be further disaggregated in order to identify the impact of changes in legal and regulatory environments, which may relate to separate elements of a claim.

Complicating this is that the pandemic and related closures may affect businesses differently depending on their industry, geography, and exposure to other impacted markets (e.g., commodities and financial markets).  Further, the period over which these impacts unfold may be extended and variable over time, as losses attributable to the pandemic may be higher in earlier months and continue after closures end.

Such challenges may be addressed through fact-intensive analysis as well as, in certain cases, econometric techniques.  For instance, techniques routinely applied in economics and other social sciences to infer causality, such as statistical tests and regression analysis, may be leveraged to disentangle various causes of business harm.

Disputes over COVID-19-related economic losses have begun and appear poised to continue as the COVID-19 crisis deepens.  Attainment of relief could depend on a claimant’s ability to establish a defensible claim.  While the current threat is new, the challenge of separating effects of discrete events from broader economic trends is not and can be addressed through proper analysis.