Mounting Evidence of a Sea Change?
On August 16, 2021, the District Court for Clark County, Nevada, denied an insurance company’s motion to dismiss a property owner’s lawsuit seeking business interruption insurance coverage due to COVID-19. A key defense often asserted by insurers in response to such claims is that physical loss or damage is required to trigger coverage and neither results from COVID-19. In this lawsuit, the property owner asserted the impact of SARS-COV-2 virions and COVID-19 exposure on the building’s interior surfaces amounts to an alteration of the property’s conditions resulting in physical damage. Without deciding the issue on its merits, the court found the complaint sufficiently alleged physical damage to trigger insurance coverage and allowed the matter to proceed.
In a different case, the Superior Court for Durham County, North Carolina, went a step further and granted summary judgment for policy holders. The plaintiffs, a group of restaurants, had purchased “all risk” property insurance that provided coverage for business interruption due to direct physical loss or damage to property. The restaurants were forced to shut down in response to government orders concerning COVID-19. They sought to recover their business interruption losses from their insurers, who rejected their claims on the basis that there was no direct physical loss or damage to property. In court, the restaurants argued direct physical loss to property includes the inability to use the property, which occurred when the government’s COVID-19 orders precluded them from operating their restaurants. The court agreed and held their business interruption losses were covered under the insurance policies.
While the majority of the COVID-19 business interruption insurance cases have been resolved in favor of insurers, policy holders are gaining a foothold. As of mid-May 2021, there were more than 50 decisions in which courts had either granted summary judgment for policy holders pursuing such claims or denied insurers’ motions to dismiss them. Scott N. Godes, State of the Law for Business Interruption Insurance Coverage for COVID-19 Claims, Volume XI, Number 134, Nat’l L. Rev. (May 14, 2021).
That’s not an insignificant number.