With the spread of COVID-19 and its far-reaching impacts throughout the country, many businesses have filed suit seeking to recover under their insurance policies’ business interruption coverage.
Business interruption coverage generally insures a business against temporary suspension of operations resulting from covered losses. However, most insurance policies’ business interruption coverage does not provide coverage for losses related to COVID-19, either because the loss does not constitute “property damage” as required by the policy, or because the policy explicitly excludes coverage for virus-related losses.
Although one Missouri federal court decision has refused to outright dismiss an insured’s claim for business interruption coverage resulting from the pandemic where the policy did not include a virus exclusion (see Studio 417, Inc. v. Cincinnati Ins. Co., No. 20-cv-03127-SRB, 2020 WL 4692385 [W.D. Mo. Aug. 12, 2020]), multiple courts throughout the country have begun to flatly reject insureds’ claims for coverage, dismissing such cases early in the proceedings.
For example, a federal district court in California recently dismissed a carpet and rug business’s claim, noting that the plaintiff failed to plausibly allege “direct, demonstrable, physical alteration” as a result of COVID-19. See Long Affair Carpet & rug, Inc. v. Liberty Mut. Ins. Co., No. SACV 20-01713-CJC, 2020 WL 6865774 (C.D. Cal. Nov. 12, 2020). The court found that “detrimental economic impact” was simply insufficient to trigger coverage. Id.
In fact, a Kansas federal court recently rejected an insured’s business interruption claim for the same reason. In Promotional Headwear Int’l v. Cincinnati Ins. Co., No. 20-cv-221-JAR-GEB (D. Kan. Dec. 3, 2020), the court noted that “the overwhelming majority of cases to consider business income claims stemming from COVID-19” have held that the insured must show some “actual or tangible harm to or intrusion on the property itself” to be entitled to coverage.
Moreover, even where insureds might be able to demonstrate that COVID-19 caused direct physical loss, multiple other courts have nevertheless found no coverage where the policy contains a virus exclusion.
In those cases, insureds have argued that their business closures were not the result of COVID‑19, but were instead the result of governmental orders forcing their closure, thereby triggering coverage. However, this argument has been met with disdain by courts, as one federal district court explicitly described such an argument as “nonsense.” Franklin EWC, Inc. v. Hartford Fin. Servs. Group, Inc., No. 20-cv-04434-JSC, 2020 WL 5642483 (N.D. Cal. Sep. 22, 2020). Several other courts are likewise rejecting any such claim. For instance, in Chattanooga Prof’l Baseball LLC v. Nat’l Cas. Co., 2020 WL 6699480 (D. Ariz. Nov. 13, 2020), an Arizona federal court rejected a group of baseball organizations’ claims that their shutdowns were caused by a government order, noting that any such shutdown was ultimately generated by COVID-19 and was, therefore, excluded. Likewise, a Michigan federal court rejected a similar argument in Turek Enterprises, Inc. v. State Farm Mut. Auto. Ins. Co., 2020 WL 5258484 (E.D. Mich. Sep. 3, 2020), noting that the “only reasonable conclusion” was that the government shutdown order “would not have occurred but for COVID-19” and, therefore, the virus exclusion applied to bar coverage. See also Diesel Barbershop, LLC v. State Farm Lloyds, 2020 WL 4724305 (W.D. Tex. Aug. 13, 2020 (“While the Orders technically forced the Properties to close[,] the Orders only came about sequentially as a result of the COVID-19 virus.”); Seifert v. IMT Ins. Co., No. 20-1102 (JRT/DTS), 2020 WL 6120002 (D. Minn. Oct. 16, 2020) (applying the virus exclusion and explaining that “if a virus is any part of the causal chain causing a loss, then the loss is not covered.”).
As a Florida federal court held, because COVID-19 is “clearly a virus,” the virus exclusion applies for loss caused “directly or indirectly” by COVID-19. Mauricio Martinez, DMD, P.A. v. Allied Ins. Co. of Am, No. 2:20-cv-00401, 2020 WL 5240218 (M.D. Fla. Sep. 2, 2020)
As it currently stands, insureds throughout the country continue to face an uphill battle for insurance coverage related to COVID-19 business losses. The more courts to reject such claims, the steeper the insureds’ climb becomes. It is important to continue to monitor the decisions being handed down by various courts throughout to country to stay abreast of the various approaches insureds are taking to pursue such claims, and how courts are likely to respond thereto.