Who Is Liable for COVID-19-related Business Losses?

Who Is Liable for COVID-19

Dorothy Yamamoto

The COVID-19 pandemic has wreaked havoc on the American economy, particularly affecting small businesses. For example, Yelp! recently released a report that of all the businesses on its review website that had been registered as “open” on March 1 were, as of June 15, still closed. In seeking to recoup business losses, business owners and attorneys general have primarily looked toward three parties: (1) the People’s Republic of China (“China”); (2) insurance companies; and (3) states. However, lawsuits against these parties for monetary damages pose significant challenges.

Those seeking to hold China responsible for COVID-19-related business losses rely on the theory that China is responsible for the pandemic because its central government allegedly engaged in a cover-up during the early stages of the COVID-19 outbreak in Wuhan, which blinded the United States to the seriousness of the situation. The Missouri Attorney General’s Office filed such a lawsuit. See Missouri v. the People’s Republic of China et al., 1:20-cv-00099 (E.D. Mo. April 21, 2020). However, any lawsuit pursuing this theory will face the potential of early dismissal because of the Foreign Sovereign Immunities Act.  See Doe v. Holy See, 557 F.3d 1066, 1083-84 (9th Cir. 2009) (citing possible policy reasons for Vatican’s conduct—shuffling a known abusive priest around parishes with minors—such as to “prevent harm[] [to] the Church’s reputation” in applying discretionary function exclusion under 28 USC § 1605(a)(5)(A)).

Many business owners were shocked when their claims for losses were denied by insurance companies. Several sued. [See, e.g., Cajun Conti LLC et al. v. Certain Underwriters at Lloyd’s, London et al., No. 2020-02558 (La. Dist. Ct., Orleans Parish Mar. 16, 2020); Jospeh Tambellini, Inc. et al. v. Erie Insurance Exchange, GD 20 5137 (Pa. Ct. C.P. April 17, 2020).]  These lawsuits, sounding in contract and insurance law, have been met with heavy resistance by insurance companies, who insist that coverage requires some “physical damage” that prevents the store from operating. Insurance companies have taken the position that losses from government-ordered shutdowns do not involve physical damage, and therefore are not compensable. Although some state legislators have considered bills that would force insurance companies to pay out on such claims, such efforts have stalled, possibly due to legislators’ realization that the extent of business losses claims could bankrupt insurance companies. [See, e.g., Melinda Deslatte, Bid to Force Interruption Insurance to Cover Virus Pulled from Louisiana Bill, Insurance Journal (May 14, 2020), https://www.insurancejournal.com/news/southcentral/2020/05/14/568631.htm.]

Finally, some business owners have focused on the “shelter-in-place” orders themselves by suing the state for compensation. The underlying legal theory is that the shutdown of businesses was a “taking of private property for public use” under the Fifth Amendment, for which compensation is required. One such case—Friends of Danny DeVito v. Wolf, No. 68 MM 2020, (Pa. March 24, 2020)—raised this argument. The Pennsylvania Supreme Court rejected this argument, citing Tahoe-Sierra Preservation Council, Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302 (2002), which held that a regulation which prevented any economic use of one’s property was not a “taking” if the regulation was temporary. A similar suit was filed as a class action, which only complicates the matter further with prerequisites for class actions. See Schulmerich Bells, LLC et al. v. Wolf, 2:20-cv-01637 (E.D. Pa. March 26, 2020). 

As apparent from the above discussion, those who seek to hold third parties responsible for COVID-19-related business losses with face several challenges. Whether these challenges can be overcome will be seen in the coming months, as the COVID-19 cases work their way through the courts.

Dorothy Yamamoto joined Dhillon Law Group in 2019. Dorothy’s practice focuses primarily on litigation and counseling related to employment and labor law.
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