So much has changed since March 2020 – the world around us, our neighborhoods, gathering spaces, our jobs, our schools, and homes. Life in the midst of COVID-19 has sparked fear, frustration, and anxiety, as well as an onslaught of litigation.
One notable area litigation related to the COVID-19 pandemic is disputes about whether commercial insurance policies cover business interruption losses. Businesses across the country have sued their insurance companies arguing that their insurance policies should cover losses incurred as a result of the presence and spread of SARS-CoV-2 particles (commonly referred to as “coronavirus”), the disease caused by the coronavirus called COVID-19, as well as losses resulting from state and local closure orders issued during the pandemic. More than 1,000 cases have been filed nationwide.
In response to these lawsuits, insurers have disputed these allegations, arguing that the insurance policies at issue only cover losses incurred as a result of direct physical damage to property, such as from an earthquake or fire, and not losses resulting from business disruptions due to a health emergency. Insurers have also noted that some policies contain explicit exclusions for losses resulting from a virus, indicating that general commercial property insurance terms were not intended to cover the losses claimed.
In the complaints at issue, some plaintiffs have argued that the presence of the virus on the property constitutes direct physical harm impacting the ability to use their business property for its intended purpose, while other plaintiffs have argued that the forced closure itself is sufficient by directly affecting use of the property. This key difference has resulted in divergent outcomes.
In cases where plaintiffs argued the forced closure of business operations was sufficient to support a claim without a showing of property damage, early decisions have favored the insurer defendants. A court in Michigan has sided with the insurers, holding that some physical damage to property was required for coverage under the policy. See Gavrilides Management Co. v. Michigan Insurance Co. (Mich. Circ. Ct. 2020). Similarly, a court in D.C. granted summary judgment to an insurer, holding that there must be some direct damage to the property itself and that loss of use as a result of government shutdown orders was not sufficient for coverage. See Rose’s 1, LLC v. Erie Insurance Exchange, No. 2020 CA 002424 (D.C. Super. Ct. 2020). Neither of the complaints in those cases alleged any direct physical loss or damage to the property.
On the other hand, some plaintiffs have asserted that the presence of the COVID-19 virus on their property or other identified dangerous conditions can constitute physical loss or damage to commercial property. One federal court has denied a motion to dismiss on this basis, holding that the insurer wrongfully refused to cover a group of hair salons’ and restaurants’ losses during COVID-19 shutdowns because the businesses adequately alleged they suffered a covered “direct physical loss.” See Studio 417 Inc. et al. v. The Cincinnati Insurance Co., No. 6:20-cv-03127 (W.D. Mo. 2020).
These early decisions are notable; however, offer no guarantee of how other courts may rule on similar claims in the future, and it will be important to continue monitoring how courts across the country assess each individual case in the coming months.
David Neiman is an attorney at Romanucci & Blandin, LLC. As the senior attorney for the firm’s complex litigation practice, David is currently representing hundreds of businesses in cases against their insurance companies for business interruption losses sustained as a result of the COVID-19 pandemic.
Romanucci & Blandin, LLC, along with insurance policyholder experts Rutter & Russin, LLC, and Spangenberg, Shibley & Liber, LLP, are collaborating to support restaurant, retail and other business owners who have suffered devastating financial losses and seek payments rightfully due from their insurance companies for business interruption losses.
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