We have reached the one-year anniversary of the start of nationwide lockdowns as a result of the COVID-19 pandemic.
On March 20, 2020, we published thoughts on insurance coverage for coronaviruses. These highlighted, among other things, the uncertainty that lies ahead for companies trying to determine how their business interruption coverage can complement their efforts to comply with government shutdowns and other consequences of the COVID-19 pandemic.
But as we cross that one-year anniversary, that ambiguity remains as insurance carriers and courts apply policy considerations in strikingly different ways. This leads to very different results for the insured. Most claims against insurers for denial of business interruption insurance claims concern 1) the question of whether a “physical loss” has occurred or 2) whether virus exclusions preclude coverage.
In the case of the Society Insurance Company’s COVID-19 business interruption litigation in northern Illinois, several policyholders have filed business interruption coverage claims. They argued that they suffered “direct physical loss or damage” to their property as a result of the COVID-19 pandemic. In an order dated February 22, 2021, the court allowed those claims to move forward. The court ruled that a reasonable jury could determine that government shutdown orders due to COVID-19 placed a physical limit on the business of what could be a “direct physical loss” required for coverage to be triggered.
In Soundview Cinemas v Great American Insurance Group et al. A New York court came to a different conclusion. The court ruled on February 10, 2021 that the loss of use due to COVID-19 closure orders did not constitute “direct physical loss or property damage” that would trigger cover for business interruptions.
An Oklahoma court came to a similar conclusion, ruling in Goodwill Industries Of Central Oklahoma Inc. v Philadelphia Indemnity Insurance Co. that “direct physical loss” does not occur when something like government shutdown orders simply uses a property for its own purposes renders intended purpose unsuitable. The court ruled that proof of “direct physical loss” would require tangible damage.
Equally contradicting the landscape is when it comes to virus exclusions (a very common exclusion that insurers often rely on in similar COVID-19 claims). In an order dated January 8, 2021, a Florida court in the Digital Age Marketing Group, IMC v Sentinel Insurance Co. Lmtd. d / b / a Hartford believed that virus exclusion is an absolute barrier to harm caused directly or indirectly by COVID-19.
Just the day before, a Chicago court had done the same thing at Riverwalk Seafood Grill Inc. with Riverside Banquets versus Travelers Casualty Insurance Co. of America. A census of cases dealing with common virus exclusions shows that this is the most common finding.
Some courts have come to a different conclusion. In McKinley Development Leasing Co. Ltd. A commercial landlord asserted a claim for business interruption protection against Westfield Insurance Co. in Ohio, which his insurer refused. The landlord sued its insurer, and the insurer moved the lawsuit to be dismissed on the grounds that excluding viruses would prohibit coverage. The court rejected this argument, ruling that a virus is not the same as a pandemic. If the insurer intended to rule out pandemics, it should have stated this in the policy.
Using similar logic, a Texas court at Independence Barbershop, LLOC v. Twin City Fire Insurance Co. ruled that the insurer, in its efforts to justify the denial of its claim, ruled “SARS-CoV-2, COVID-19, the COVID – 19 Pandemic and Government Shutdowns Related to the COVID-19 Pandemic “when those terms and expressions can actually refer to four different things.
These cases are just a small sample of the results we see across the country, but they illustrate the unpredictable landscape that lies ahead of those who want to make claims. Despite the fact that the results remain unpredictable, trends are emerging to inform some best practices for making claims.
The most important lesson learned so far, which serves as a guide in otherwise murky waters, is that policyholders must take cautious steps to assert business interruption coverage claims using careful language that reflects the specifics Provisions of the policy taken into account under which claims are asserted. It is imperative to analyze the various factors that limit your business operations:
- Government mandates.
- The pandemic as an ongoing event.
- The actual physical presence of COVID-19 in your company or
- Something else.
It is also important to understand, before making a claim, how a combination of these factors actually resulted in losses for your business. Think if there is a physical barrier or damage, or if there is just financial loss.
Nick R. Herrick is an attorney in the litigation department of the Denver-based law firm Moye White. He can be reached at [email protected].
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