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Can I File a Business Interruption Lawsuit If I Took PPP Money?

May 27, 2020

Businesses across the country have struggled to stay afloat amid the pandemic, leading many to seek relief from the SBA’s Paycheck Protection Program (PPP). Passed under the CARES Act, the PPP provides businesses with access to potentially forgivable loans to cover rent, payroll, and essential expenses.

While the PPP and other stimulus funding can provide some relief to businesses impacted by COVID-19, it has become clear that relief is only temporary, and not without conditions and caveats.

As such, businesses are turning to their insurance policies for more durable solutions – and specifically to business interruption claims and lawsuits that seek payment for losses resulting from the pandemic.

PPP Loan? You Can Still Pursue Business Interruption Claims

Losses arising from COVID-19 may be recoverable in some circumstances – even if a business has filed a loan application through the Paycheck Protection Program, received a PPP loan, or has had their PPP loan forgiven in whole or in part by the SBA.

Because participation in the Paycheck Protection Program does NOT preclude a business from pursuing claims over virus-related losses, the more prudent question becomes whether businesses have grounds to file a valid claim, or recourse to litigate if their claim is denied by their insurance provider.

The viability of a lawsuit after receiving a denial from the insurance provider depends on the specific circumstances and language contained in the insurance policy.

Insurance Companies Stand Firm on Denying Business Interruption Claims

Businesses that have managed to remain solvent or keep employees on payroll through a combination of cash reserves, (PPP) money, and other creative strategies have increasingly turned to insurance to bridge the gap. According to estimates from the American Property Casualty Association, as many as 30 million businesses in the U.S. could submit virus-related claims totaling billions of dollars.

Unfortunately, insurance companies have been clear on their position: insurance policies for natural or man-made disasters, they say, were never intended to cover virus outbreaks.

Business owners – policyholders who have purchased property insurance and insurance products designed to cover business interruption, closures mandated by civil authorities, and other losses see the matter differently.

The debate has prompted many lawsuit filings, as well as efforts from advocates and lawmakers who support legislation that would require insurers to pay business claims filed over COVID-19.

While it remains unclear whether legislation will come to fruition, especially given the influence and power wielded by lobbyists, many cases brought by businesses will be hinged on whether the coronavirus’ presence in or near a business constitutes “direct physical loss or damage” as required by most policies to trigger coverage – a loss that would otherwise be clearly covered.

Though Courts have yet to definitively answer the question, a recent ruling from the Pennsylvania Supreme Court upholding the closure of nonessential businesses likened the pandemic to a natural disaster. As the majority opinion states:

“COVID-19 pandemic is, by all definitions, a natural disaster and a catastrophe of massive proportions.”

Additional conflict may exist in policies that specifically exclude pandemics. However, not all policies contain such exclusions, and the existence of exclusions does not mean businesses are without valid claims. In North Carolina, there may exist circumstances where these exclusions do not apply. Separate policy provisions such as civil authority coverage, which can be triggered when a government limits access to the policyholder’s premises, may also cover virus-related losses.

Steps Business Owners Can Take

Business owners, corporate leadership, and professionals who counsel and consult corporate entities should carefully evaluate their policies and enlist the support of proven attorneys to determine if coverage applies, quantify recoverable losses, and litigate for payment.

While attorneys can help businesses explore their options, policyholders should still take steps to maintain records that document losses and continuing expenses, and ensure documentation is organized and easily accessible. Many insurance policies contain provisions that, if a claim is approved, allow insurers to hire experts to assist in calculating the insured’s claim.

  • Document key dates that track when a business was closed, detrimentally affected by the pandemic, and / or impacted financially by local, state, and federal orders, including mandatory closures and social distancing directives.
  • Document expenditures directly related to COVID-19, including sanitizing supplies, PPE, and remote technology.
  • Prepare accurate and timely financial statements, including balance sheets, income statements, and cash flow, on a monthly basis, and maintain records of previous statements.
  • Maintain any records related to PPP funds, application and bank documentation, use of funds, and notice of forgiveness.
  • Preserve internal reports and metrics, employment stats, (i.e. payroll, hours, Family Leave), and other relevant company data;

Counseling Businesses Across North Carolina

Edwards Kirby is actively reviewing and litigating business interruption lawsuits for a range of small and large businesses, corporate clients, and corporate counsel who have suffered sizeable losses due to COVID-19. Though the insurance industry has dug in on denying claims, a denial is not absolute. There may be opportunity to pursue legal action based on the language contained in your policy and its interpretation. Edwards Kirby will review your insurance policy, free of charge, to determine if you might have a viable claim against your insurance provider.

Our team is available to discuss your potential claim, policy, and rights as an insured. Call or contact us to speak with a lawyer.

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