With life returning to some semblance of normal amid what hopefully will be the end stages of the global pandemic, businesses throughout the country are attempting to rebound from the effects of extensive shutdowns and suspensions of operations. However, as noted here, many are encountering major setbacks with respect to business interruption insurance coverage claims filed in an effort to recoup lost revenue as a result of the coronavirus.
While business interruption insurance generally covers losses associated with temporary suspensions of operations, most insurance policies require that such suspension result from some kind of direct physical loss to the insured property. Accordingly, with the massive wave of litigation that has emanated from such claims, courts across the country have been left to grapple with the question of whether the threat or presence of COVID-19 qualifies as direct physical loss to property so as to trigger coverage.
On that question, the overwhelming majority of courts have outright rejected any such notion, thereby leaving insured businesses with no coverage for their coronavirus-related losses.
Missouri authority on the question is no different, although results were initially mixed in the state’s federal courts. As noted here, one Missouri federal court judge refused to dismiss a business interruption claim where the insured alleged that the presence of COVID-19 physically deprived the insured of its ability to use its business property. See Studio 417, Inc. v. Cincinnati Ins. Co., 478 F.Supp.3d 794 (W.D. Mo. Aug. 12, 2020).
According to the Studio 417 court, such loss of use of the property arguably qualifies as direct physical loss so as to implicate coverage. Importantly, however, the Studio 417 court reserved its judgment on the question, noting that “[s]ubsequent case law in the COVID-19 context, construing similar insurance provisions, and under similar facts, may be persuasive.” Id. at 805. For that reason, the court expressly stated that its ruling was subject to further review. Id.
Since the Studio 417 decision, more and more Missouri federal judges have begun to disagree with its rationale. For example, contrary to the Studio 417 court’s analysis, the court in Zwillo V, Corp. v. Lexington Ins. Co., 4:20-00339-CV-RK, 2020 WL 7137110 (W.D. Mo. Dec. 2, 2020) held that mere loss of use of property as a result of measures designed to prevent the spread of COVID-19 is insufficient to trigger coverage.
Instead, the court held that the insured was required to demonstrate “actual” or “demonstrable” harm to some portion of “the premises itself” in order to trigger coverage. Id. at *4.
Similarly, in MMMMM DP, LLC v. Cincinnati Ins. Co., 4:20-cv-00867-SEP, 2021 WL 2075565, at *3 (E.D. Mo. May 24, 2021), the court explained that, under applicable Missouri precedent, “physical alteration” of property was required to satisfy the direct physical loss requirement of business interruption coverage. Because the coronavirus simply “does not physically alter property,” the court rejected the Studio 417 decision as “an outlier” despite both cases involving “almost identical” allegations. Id. at *3–4
Finally, and most recently, the Missouri federal court in Monday Restaurants LLC v. Intrepid Ins. Co., No. 4:20-cv-767-SNLJ, 2021 WL 2222692 (E.D. Mo. June 2, 2021), came to the opposite conclusion as the Studio 417 court.
There, the court noted that the “weight of authority” under Missouri law requires insureds to demonstrate some “physical event or physical injury” to their property in order to trigger coverage. By contrast, mere “loss of intended use” as a result of COVID-19 shutdowns is insufficient. Many other Missouri federal decisions have followed suit in rejecting insureds’ claims for business interruption coverage for COVID-19 losses. See Seoul Taco Holdings, LLC v. Cincinnati Ins. Co., No. 4:20-CV-1249-RLW, 2021 WL 1889866 (E.D. Mo. May 11, 2021); Robert E. Levy, D.M.D., LLC v. Hartford Fin. Servs. Grp. Inc., 2021 WL 598818, at *9, *12 (E.D. Mo. Feb. 16, 2021) BMS, LLC v. Cont’l Cas. Co., No. 20-0353-CV-W-BP, 2020 WL 7260035, at *3 (W.D. Mo. Nov. 30, 2020).
With most courts dismissing COVID-19 business interruption claims, the door appears to be closing for insured businesses looking to insurance coverage to recoup coronavirus-related losses. And with more and more Missouri decisions falling in line with this majority, it appears that the Studio 417 court will have plenty to consider in reviewing its “outlier” ruling in favor of insured businesses.
Consequently, it remains critical to monitor continuing developments in the arena of COVID-19 business interruption litigation, as many insureds pursue appeals of unfavorable rulings, allowing federal appellate courts the opportunity to weigh in on the question.