We are approaching one year since lockdowns across the country began as a result of the COVID-19 pandemic. On March 20, 2020, we published Coronavirus Insurance Coverage Considerations, highlighting, among other things, the lack of clarity that, at the time, undoubtedly laid ahead for businesses looking to determine how their business interruption insurance coverage may supplement efforts to comply with government shutdowns and other consequences of the COVID-19 pandemic.
Unfortunately, as we approach the 1-year anniversary, that lack of clarity persists as insurance carriers and courts across the country apply policy considerations in strikingly differing manners, resulting in wildly varying outcomes for insureds. Most claims against insurers for denial of business interruption insurance claims turn on (1) the issues of whether a “physical loss” has occurred; and/or (2) whether virus exclusions preclude coverage.
In the case of In re: Society Insurance Company COVID-19 Business Interruption Protection Insurance Litigation, in the Northern District of Illinois, several insureds made a claim for business interruption coverage, arguing that they suffered a “direct physical loss of or damage to” their property caused by the COVID-19 pandemic. In a February 22, 2021 Order, the Court allowed those claims to move forward, holding that a reasonable jury could find that governmental closure orders resulting from COVID-19 imposed a physical limit on the business, which 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 So undview Cinemas court held on February 10, 2021 that loss of use resulting from COVID-19 closure orders does not constitute a “direct physical loss of or damage to property” that would trigger business interruption coverage. An Oklahoma court came to a similar conclusion, holding in Goodwill Indust. Of Central Okla., Inc. v. Philadelphia Indemnity Ins. Co. that “direct physical loss” does not occur when something, such as governmental closure orders, simply renders a property unsuitable for its intended purpose; showing a “direct physical loss” would require some tangible damage.
The landscape is just as contradictory with respect to virus exclusions (a very common exclusion frequently relied upon by insurers in similar COVID-19 claims). In a January 8, 2021 Order, a Florida court in Digital Age Marketing Group, IMC v. Sentinel Ins. Col. Lmtd. d/b/a the Hartford held that a virus exclusion served as an absolute bar to damage caused directly or indirectly by COVID-19. Just one day earlier, a Chicago court held the same in The Riverwalk Seafood Grill Inc. d/b/a Riverside Banquets v. Travelers Casualty Ins. Co. of America. A census of cases addressing common virus exclusions shows this to be the most common outcome.
Some courts have come to a different conclusion. In McKinley Development Leasing Co. Ltd. Et al v. Westfield Insurance Co., in Ohio, a commercial landlord made a claim for business interruption coverage, which its insurer denied. The landlord sued its insurer, and the insurer sought to have the suit dismissed, arguing that the virus exclusion barred coverage. The Court rejected that argument, holding that a virus is not the same as a pandemic; if the insurer intended pandemics to be excluded, it should have stated as much in the policy. Applying similar logic, a Texas Court held in Independence Barbershop, LLOC v. Twin City Fire Ins. Co. that the insurer, in its efforts to justify its claim denial, was improperly conflating “SARS-CoV-2, COVID-19, the COVID-19 Pandemic, and government shutdowns related to the COVID-19 Pandemic,” when these terms and phrases may actually refer to four separate things.
These cases are only a small sampling of outcomes we are seeing across the country, but they are illustrative of the unpredictable landscape that lies ahead of those seeking to make claims. But, despite the fact that outcomes remain unpredictable, trends are beginning to arise to inform some best practices in making claims.
The most important lesson learned to date, and one that serves as a guiding light in otherwise murky waters, is that insureds must take cautious steps in making claims under business interruption coverage by using careful language that accounts for the particular terms of the policy under which claims are being made. It is imperative to parse out the various factors constraining your business operations:
- Government mandates;
- The pandemic, as an ongoing event;
- The actual, physical presence of COVID-19 at your business; or
- Something else.
It is also imperative to understand, before making a claim, how some combination of these factors has actually given rise to losses within your business: consider whether there is some physical barrier or damage, or whether there is merely a financial loss.
If you have questions about what your policy covers or what steps you should take to make a claim to your insurer under those coverages available to you, Moye White’s Insurance Coverage and Recovery Group is practicing on the cutting edge of this emerging area of the law and is ready to help.
A version of this article was published in InsuranceNewsNet.