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• • Business Interruption Insurance Coverage Update – read now

Business Interruption Insurance Coverage Update

by Michael Stover

One of the important issues that has arisen as a result of the pandemic is whether business interruption insurance covers lost income claims resulting from shut-downs of businesses because of the pandemic.  Hundreds of lawsuits have now been filed all around the country by insureds seeking coverage. Decisions from the courts are just now starting to come in.  In July, a state trial court judge in Michigan granted an insurance company’s motion to dismiss claims by a restaurant.  Earlier this month, a trial court in Washington, D.C., granted summary judgment to an insurance company finding that the shutdown order did not cause a direct physical loss for the restaurant.

However, more recently a United States District Court Judge in Kansas City, Missouri ruled that the policyholders, including a hair salon and restaurant, had plausibly alleged a direct physical loss attributable to COVID-19.  This ruling appears to be the first decision in favor of plaintiffs’ claims for business interruption insurance coverage.

The Kansas City plaintiffs argued that the coronavirus was an airborne virus that was rampant in the community that has infected their business properties.  It was asserted that the presence of the virus rendered their businesses unsafe and unusable, forcing the shutdowns that triggered their insurance coverage.

The insurance company argued that COVID-19 did not trigger business interruption insurance coverage because it did not cause tangible, physical damage.  The insurer stated that the virus can be cleaned from surfaces or will otherwise die naturally within days, leaving no physical trace.  Moreover, the insurer argued, the salons and restaurants had not demonstrated the virus was actually present within their properties.

The Court stated that under the ordinary meaning of “physical loss,” the policyholders suffered a loss when the spread of coronavirus led to prohibitions or restrictions on their businesses.  The Judge held that businesses can experience physical loss when they are rendered unusable.  The decisions on this issue so far have only been at the trial court level.  It will be some time before appellate court decisions are made.  Because the issue remains in flux it makes sense for businesses to continue to pursue business interruption insurance coverage where warranted.  This issue will continue to be the source of court decisions and we will continue to monitor these rulings.

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