In another substantial development in business interruption (BI) litigation, a District of Columbia Superior Court judge ruled that COVID-19 does not lead to physical property damage, arguing that the plaintiffs' business insurance policy is not triggered because the shutdown did not amount to direct physical loss.
The judge reiterated what insurance contracts make clear: standard BI policies require "direct physical loss or damage" to the business--or structural alteration--such as in a fire, or for a civil authority to close off the area to a business nearby. The coronavirus leaves no visible imprint or structural alteration, and therefore does not trigger BI coverage.
The case ruling pointed out the following:
- To trigger the policy, the "loss" has to directly impact the property itself. While plaintiffs in this case argued that the civil orders were the "direct" reason for the closing, "the judge wrote that the orders only directed businesses to take certain actions but did not effect any direct change to the properties in and of themselves." (LAW360, 8/7)
- The judge also stated plaintiffs "failed to put forth any cases supporting their contention that a mayoral order constitutes direct physical loss under an insurance policy," instead citing several cases where courts have rejected coverage where there was no direct physical harm to the properties. (Insurance Journal, 8/7)
- While the plaintiffs argued that the losses were physical because COVID-19 is "material" and "tangible" rather than abstract, "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)
This latest verdict follows a July Michigan state court ruling that also sided with insurers, finding that tangible alteration to a property is required to trigger BI coverage.
For more information, visit fairinsure.org.