As the COVID-19 pandemic passes the one-year mark, courts throughout the country continue to address the question of whether commercial property insurance policies provide coverage for businesses impacted by the public health crisis. With nearly 200 decisions issued to date, the landscape of decisional law has slowly taken a discernable form.
The primary issue before the courts has been whether a governmental order placing operational restrictions on businesses in an effort to curb the spread of COVID-19 satisfies the requirement of “direct physical loss of or damage to property” in order to trigger coverage under business income and extra expense policy provisions. Most courts have answered this question in the negative because the orders do not impart any physical impact on, or cause any physical alteration of, property. For example, a Florida federal court in Malaube, LLC v. Greenwich Ins. Co., 20-22615-CIV, 2020 WL 5051581, at *8 (S.D. Fla. Aug. 26, 2020), observed that “it is not plausible how two government orders meet that threshold when the restaurant merely suffered economic losses – not anything tangible, actual, or physical.” Similarly, a California federal court in Water Sports Kauai, Inc. v. Fireman's Fund Ins. Co., 20-CV-03750-WHO, --- F. Supp. 3d ----, 2020 WL 6562332, at *7 (N.D. Cal. Nov. 9, 2020), considered similar circumstances and found there to be “no allegation of any direct physical contact that caused a tangible loss to their property . . . or the direct physical presence of a contaminant that creates an inability to use or need for remediation.”
A number of policyholders have raised the argument that a typical insuring agreement’s use of the conjunction “or” indicates that “loss of” and “damage to” cover different risks and, therefore, “loss of” encompasses mere loss of use of property without any physical alteration. The majority of courts, however, have rejected this argument. While some courts accept that the terms have different meanings, they have generally been unwilling to interpret the plain language to cover government shutdown related losses since they are not physical in nature.
Taking a different approach, some policyholders have argued that the presence of COVID-19 at the premises caused the requisite “direct physical loss.” In considering these allegations, courts have reached varying results. Some courts, like several in Missouri, have concluded allegations that “COVID-19 particles attached to and damaged . . . property, which made the premises unsafe and unusable,” are sufficient to survive motions to dismiss. See Studio 417, Inc. v. Cincinnati Ins. Co., 478 F. Supp. 3d 794, 802 (W.D. Mo. 2020). Other courts have held that even these allegations are still insufficient to trigger coverage because “COVID-19 does not threaten the inanimate structures covered by property insurance policies, and its presence on surfaces can be eliminated with disinfectant.” Uncork & Create LLC v. Cincinnati Ins. Co., 2:20-CV-00401, --- F. Supp. 3d ----, 2020 WL 6436948, at *5 (S.D. W. Va. Nov. 2, 2020).
Litigation has also centered around virus or microorganism exclusions contained in some policies. Such exclusions vary in form but generally exclude coverage for losses caused by or resulting from a virus. The overwhelming majority of courts have concluded such exclusions apply and bar coverage, even where the policyholder has expressly denied the presence of COVID-19 at the insured premises but had to shut down due to government orders. This is because COVID-19 is usually characterized as the “efficient proximate cause” or the predominating cause that sets other causes in to motion. As one court explained, because government orders “would not exist absent the presence of COVID-19[,] COVID-19 is therefore the efficient proximate of [the] losses” and the virus exclusion precludes coverage. Boxed Foods Co., LLC v. California Capital Ins. Co., 20-CV-04571-CRB, --- F. Supp. 3d ----, 2020 WL 6271021, at *4 (N.D. Cal. Oct. 26, 2020). In addition, some virus exclusions include anti-concurrent causation language or exclude losses “indirectly” caused by a virus. With exception of two decisions in Ohio and Virginia, courts have found these broader exclusions applicable to losses stemming from the government shutdown orders. Policyholder efforts to avoid application of virus exclusions, including reliance on regulatory estoppel or reasonable expectations doctrines, have largely failed.
Another contested issue has been the entitlement to coverage under civil authority coverage extensions. For much of the same reasons discussed above, most courts have also concluded that there is no coverage under civil authority provisions, which generally require physical damage to neighboring property. In addition, courts have observed that government orders do not actually prohibit access to the insured premises, which is another requirement for coverage. Some courts have also noted the absence of any casual connection between the alleged damage to neighboring property and the government orders, which apply to large swath of businesses and industries. Furthermore, virus exclusions generally have equal application to these coverage provisions. Thus, most courts have declined to find that policyholders are entitled to coverage under these civil authority provisions.
On balance, the majority of courts have concluded that commercial property policies do not provide coverage for losses caused by the COVID-19 pandemic, either because there has been no direct physical loss of or damage to property to implicate coverage, a virus exclusion applies to bar coverage, or both. There have been approximately 155 decisions in favor of insurers, as compared to approximately 35 in favor of policyholders, throughout the United States. The most favorable jurisdictions for insurers include Alabama, California, Florida, Georgia, Illinois, Iowa, New York, and Texas, to name a few. Courts in Missouri and Ohio, however, have generally been more willing to find in favor of policyholders. The same holds true for the few decisions out of North Carolina, Virginia, and Washington. Courts in Pennsylvania and New Jersey have reached mixed results. Many other jurisdictions have yet to have any court rule at all. Most importantly, no appellate court has yet to rule on any of these issues. When one eventually does, it may impact the landscape of COVID-19 business interruption litigation moving forward.