The Oklahoma Supreme Court is the most recent state high court to hold that property insurance policies do not provide coverage for COVID-19 related business interruption losses. In Cherokee Nation v. Lexington Insurance Company, 2022 OK 71 (Sept. 13, 2022), the court reversed a trial court’s ruling that a Tribal Property Insurance Program (TPIP) policy provided coverage for the Cherokee Nation’s alleged business interruption losses resulting from its temporary closure of its properties in 2020 as a result of the COVID-19 Pandemic. The Court specifically held that the phrase “direct physical loss or damage … to real and/or personal property” requires “immediate and actual, material or tangible deprivation or destruction of property” and “does not include coverage for merely loss of use of property.” The Court, consequently, rebuffed the policyholders’ argument that certain differences in TPIP policy language expanded the scope of coverage available for business interruption losses and concluded that no coverage was available because the policyholders had not presented any evidence that their property was tangibly damaged or destroyed.
The Cherokee Nation decision is one of the first at the appellate level to evaluate COVID-19 related business interruption coverage under a TPIP policy, which is specifically tailored to Native American Nations and their businesses. TPIP policies often contain different provisions and policy language than more standard property policies with Insurance Services Office (“ISO”) form policy language.
The all-risk TPIP policy issued to the Cherokee Nation provided coverage for, inter alia, “loss resulting directly from the interruption of business, services or rental value caused by direct physical loss or damage, as covered by the Policy to real and/or personal property insured by this Policy….” The trial court concluded that this language provided coverage for the policyholders’ alleged losses because, in its view, the above language was distinguishable from, and broader than, the ISO form policy language “direct physical loss of or damage to property.” The trial court, therefore, rejected the insurers’ reliance on decisions from other courts interpreting the ISO form language. The trial court also considered that the TPIP policy did not explicitly define “direct physical loss or damage” and ultimately determined that the TPIP policy afforded coverage for the Cherokee Nation’s business losses without the need to demonstrate actual, tangible property damage.
The Oklahoma Supreme Court reversed the trial court’s decision. First, the Court rejected the trial court’s attempt to distinguish between business interruption language in the TPIP Policy and the language found in ISO form property policies. The Court determined that the language in both policy forms was almost identical, and that any differences are immaterial to whether coverage is owed for COVID-19 related business interruption losses when the insured did not sustain actual tangible damage to property.
Second, based upon the ordinary dictionary meanings of the words “direct,” “physical,” “loss,” and “damage,” the Court concluded that the TPIP Policy language “direct physical loss or damage… to real and/or personal property” does not include coverage for mere loss of use of property, but instead requires “immediate and actual, material, or tangible deprivation or destruction of property.” The Court specifically held that this language “precludes those intangible losses involving detrimental economic impact unaccompanied by a ‘distinct, demonstrable, physical damage to property.’” The Court also relied upon the separate ‘Period of Restoration’ provision of the TPIP Policy to support this conclusion, because that provision limits coverage for business interruption losses to the time when the requisite “direct physical loss or damage” is “rebuilt, repaired or replaced.” The Court then reversed the trial court’s ruling because the policyholders’ claimed COVID-19 mitigation efforts did not constitute repairs to or the replacement of damaged or lost property.
Cherokee Nation is another victory for property insurers in the US. The reasoning in Cherokee Nation is consistent with the clear election of the Oklahoma Supreme Court and the majority of other US courts to set appropriate limits on the scope of business interruption coverage provided under property insurance policies that match the fundamental coverage grant of such policies. Furthermore, the Oklahoma Supreme Court’s rejection of the policyholders’ attempt to distinguish the TPIP business interruption language from ISO form policy language forecloses the possibility of a divergent line of cases in the COVID-19 business interruption litigation context, at least under Oklahoma law, and simplifies the required analysis for both policyholders and insurers. Cherokee Nation can therefore aptly serve as a useful guidepost for other trial and appellate courts currently presiding over COVID-19 business interruption coverage disputes, including those involving TPIP policies.
On September 30, 2022, the Cherokee Nation filed a Petition for Rehearing requesting that the Oklahoma Supreme Court vacate its decision and affirm the trial court’s ruling. We will provide an update on whether the Court grants the Petition in the coming months.