A Growing List Of Court Decisions Affirms The Necessity Of Direct Physical Damage For Business Interruption Insurance
April 28, 2021
Business interruption (BI) policies are not designed to cover pandemics and necessitate a direct physical loss to property to be activated. As such, the widespread litigation against insurers, attempting to alter BI policies to cover pandemic-related income losses, is a misguided effort that places the interests of attorneys ahead of business owners'.
To date, there has been an increasing number of court rulings affirming insurers' position:
U.S. District Court for the Northern District of California: "A California magistrate judge on Tuesday dished out a dismissal in famed California [policyholder]'s suit seeking coverage for pandemic-related government shutdown orders, saying a virus exclusion precludes coverage for economic losses caused by COVID-19."
U.S. District Court for the Southern District of Indiana: "An Indiana federal judge on Monday ruled that [policyholder] is not entitled to coverage for pandemic-related business interruption losses, finding that a clear virus exclusion in the [policyholder's] policies forecloses their insurance claims." (Law360, 3/8/21)
U.S. District Court for the Southern District of Florida: "The plaintiff alleged that COVID-19 was 'present' at the insured properties on a particular date, but Chief Judge K. Michael Moore held that this allegation was insufficient to state a claim for coverage and granted the insurer’s motion to dismiss with prejudice." (JD Supra, 1/25/21)
U.S. District Court for the Western District of Pennsylvania: "A federal judge on Friday tossed [plaintiff's] proposed class action seeking coverage from [insurer] for losses due to the coronavirus, finding that establishments limited to carry-out service had not sustained the 'direct, physical loss' necessary to trigger their insurance policies." (Law360, 1/15/21)
U.S. District Court for the Southern District of Mississippi: "A Hattiesburg, Mississippi, restaurant became the latest plaintiff to be denied COVID-19-related business interruption coverage by an insurer, when a federal district court ruled Wednesday there was no physical damage under the terms of its policy and that there was also no coverage because of a virus exclusion." (Business Insurance, 11/5)
U.S. District Court for the Western District of Texas: "A Texas federal judge has handed [insurer] a win over a Texas [policyholder] that alleged the insurer wrongly denied it coverage of losses resulting from the COVID-19 pandemic, saying an 'unambiguous' virus exclusion bars coverage." (Law360, 10/27)
U.S. District Court for the Southern District of Alabama: "U.S. District Judge Jeffrey U. Beaverstock said in a Wednesday order that [plaintiff] failed to allege physical damage. The practice's argument that it experienced a "period of restoration" when the government allowed it to reopen was also "unavailing," the judge said." (Law360, 10/22)
U.S. District Court for the Northern District of Georgia: "A Georgia federal judge has dismissed a [policyholder's] COVID-19 business interruption coverage lawsuit, ruling that a government stay-at-home order did not cause the eatery to sustain 'direct physical loss of or damage' to its insured property or surrounding premises." (HarrisMartin, 10/7)
U.S. District for the Middle District of Florida: "The judge rejected [policyholder's] argument that economic damage is synonymous with physical loss. 'Plaintiff's argument is unpersuasive because Florida law and the plain language of the policies reflect that actual, concrete damage is necessary,' he said." (WestLaw Today, 9/29)
U.S. District Court for the Southern District of California: "'Plaintiffs are not the first policyholders to argue in court that government orders forcing their businesses to stop operating as a result of the COVID-19 pandemic trigger insurance under provisions similar or identical to the ones in the Policy here. Most courts have rejected these claims, finding that the government orders did not constitute direct physical loss or damage to property,' Judge Bencivengo said in a ruling for [insurer]." (Business Insurance, 9/14)
U.S. District Court for the Eastern District of Michigan: "The policy only covers lost income in the event of physical damage to a property, and even if that were not the case, the virus exclusion in the policy would bar pandemic-related coverage, the judge ruled. The ruling adds to the growing list of insurer wins on the issue of business interruption coverage for coronavirus-related losses." (Business Insurance, 9/4)
U.S. District Court for the Middle District of Florida: "Because [the plaintiff's] damages resulted from COVID-19, which is clearly a virus, neither the Governor’s executive order narrowing dental services to only emergency procedures nor the disinfection of the dental office of the virus is a 'Covered Cause of Loss' under the plain language of the policy’s exclusion,' the ruling states." (Business Insider, 9/3)
U.S. District Court for the Central District of California: "'An insured cannot recover by attempting to artfully plead impairment to economically valuable use of property as physical loss or damage to property,' Wilson said, adding that [the plaintiff] has only plausibly alleged that in-person dining restrictions interfered with the use or value of its property — 'not that the restrictions caused direct physical loss or damage.'" (Law360, 8/28)
U.S.DistrictCourtfortheWesternDistrictofTexas: "In so ruling, Judge Ezra indicated that 'while there is no doubt that the COVID-19 crisis severely affected Plaintiffs’ businesses, [insurer] cannot be held liable to pay business interruption insurance on these claims as there was no direct physical loss, and even if there were direct physical loss, the Virus Exclusion applies to bar Plaintiffs’ claims.'" (The National Law Review, 8/25)
District of Columbia Superior Court: "The judge found the plaintiffs offered no evidence that the virus was present in their inured properties and found that the mayor’s orders did not have any material or tangible effect on the insured’s properties." (Insurance Journal, 8/7)
Michigan's Ingham County 30th Judicial Circuit Court: "The court said that [the plaintiffs'] argument was 'just simply nonsense, and it comes nowhere close to meeting the requirement that there has to be some physical alteration to or physical damage or tangible damage to the integrity of the building.'" (JD Supra, 7/17)
Southern District Court of Florida & Eleventh Circuit Court: "Based on the Eleventh Circuit’s analysis, coverage will not be triggered for similar claims because the presence of the COVID-19 virus, or cleaning related to the virus, does not constitute direct physical loss or damage to property. The Eleventh Circuit’s holding provides helpful guidance that will most certainly be used in the analysis of COVID-19 business interruption claims." (JD Supra, 7/21)
As highlighted in FAIR's one-minute explainer video below, trial attorneys' attempts to retroactively include the uninsurable pandemic risk in business interruption insurance contracts is detrimental to policyholders, communities, insurers, and economic growth. Insurers are doing what they can in response to the pandemic, as they work to keep their promises to policyholders for covered catastrophe losses such as hurricane damage.