Among the many concerns that have confronted businesses in the wake of the coronavirus pandemic, the issue of business interruption coverage has often loomed large. Many businesses had to shut down operations or at least greatly reduce their operations to comply with state lockdowns and avoid potential civil liability resulting from causing someone’s exposure to the virus. The losses companies faced as a result of these shutdowns easily numbered in the hundreds of billions of dollars.
Some Seek Coverage Through Business Interruption Insurance
Problematically, business interruption insurance requires damage to physical property from a covered cause of loss. On a straightforward interpretation of policy language, coronavirus shutdowns were not being caused by damage to physical property. On top of that, several insurance companies had added specific exclusions to their property policies stating that viruses or contagious diseases were not a covered cause of loss. Based on these factors, many insurance companies indicated they would not cover business interruption losses caused by coronavirus.
Many Businesses Fight For Coverage
While many states tried to explore legislative fixes to this issue, a number of businesses around the country started to sue their insurance carriers seeking a declaration that coronavirus losses would be covered. While many of these suits are still in progress, several have resulted in preliminary outcomes.
A Ruling in Michigan
A state district court in Michigan dismissed a case against insurance companies there on the basis that the virus travels through the air and does not cause physical damage. Another court in Washington, D.C. dismissed a similar case using similar reasoning.
A Different Ruling in Missouri About Coverage for COVID-19 Losses
Just a few weeks ago however, a court in Missouri came to the opposite conclusion. Ruling on a Motion to Dismiss filed by the insurance company being sued, a federal judge ruled that the coronavirus COULD BE considered physical substance that attached to and damaged property, rending it unsafe and unusable. It’s important to note that, when ruling on a Motion to Dismiss, a judge must view all facts in the light most unfavorable to the party seeking to have the case dismissed. Thus, the judge’s ruling is not a definitive answer on whether COVID-19 actually does cause physical damage as that term is used in business interruption insurance coverage. The ruling only states that given the facts alleged, the virus could be seen that way and ultimately it will be up to a jury to decide the factual questions in the case.
Key Takeaways For Companies
The federal courts are considered consolidating hundreds of lawsuits on the issue of COVID-19 business interruption coverage into a single massive class action suit in order to avoid a series of contradicting and conflicting decisions in these cases and also make them considerably less costly. Attempts to do so may be thwarted by conflicting state laws and differing policy language offered by various insurers. For now, businesses should do their best to track any losses or additional expenses that occur as a result of having to lockdown their locations as the law in this area continues to develop.
