The U.S. District Court for the Southern District of Iowa ruled in favor of the insurer in a lawsuit on pandemic-related business interruption (BI) claims due to lack of alleged physical property loss or damage that would trigger coverage.
According to Judge John A. Jarvey:
- Direct physical loss necessitates tangible alteration of property, not the loss of use of property due to mandatory closures. "The closure orders amounted to a direct physical loss because they were prevented from doing normal business, [plaintiffs] said. Jarvey rejected this theory. 'It is a settled matter in Iowa law that direct physical loss or damage requires tangible alteration of property and that loss of use alone is insufficient,' he said."
- The virus exclusion in policyholders' BI policy clearly prohibits coverage, even if statewide shutdown orders cause physical damage. "This virus exclusion lets [insurer] off the hook even if the [plaintiffs] could show that Covid-19 or statewide shutdown orders actually altered their property, he said. 'The Virus Exclusion unambiguously states it will not pay for loss or damage that is directly or indirectly caused by any virus, regardless of any other cause or event that contributes to the loss.'"
This lawsuit is part of a nationwide litigation trend we've seen in recent months, led by trial attorneys, attempting to retroactively alter BI contracts to cover pandemic-related income losses—a misguided effort that places the interests of attorneys ahead of business owners' and jeopardizes insurers' ability to meet promises to policyholders on covered claims. The Iowa ruling adds to the growing list of favorable rulings affirming insurers' position that global pandemic risks are uninsurable.
The full article is available here. For more information and resources, visit fairinsure.org