The COVID-19 pandemic has caused a wave of business interruption lawsuits, particularly between policyholders and their insurance companies. Initially, the nationwide trend was in favor of insurance companies, but recent decisions confirm that policyholders are gaining traction.
Policyholder arguments gather steam in court
One of the pioneer lawsuits, for example, recently survived a summary judgment motion. In Cajun Conti LLC v. Certain Underwriters at Lloyd’s of London, No. 2020-02558 (La. Civ. Dist. Ct., Orleans Parish, Nov. 4, 2020), the policyholder, a restaurant group, sought a judgment declaring that its insurance company should cover losses related to an order entered by Louisiana’s governor banning gatherings of 250 people or more. This caused the restaurants to operate at 50 percent capacity and cease service by 9 p.m. On November 4, 2020, the Louisiana state court denied the insurance company’s motion for summary judgment after finding the following four issues of material fact:
(1) Whether COVID-19 constitutes direct physical loss or damage;
(2) Whether the policy interests necessitate a more liberal reading of prior case law;
(3) If COVID-19 constituted a physical loss or damage, whether COVID-19 impacts the environment;
(4) In the context of civil authority coverage, whether COVID-19-related damages to property at another location within one mile of any of the restaurants is a covered cause of loss.
Likewise, a Pennsylvania state court overruled the insurance company’s motion to dismiss a tavern’s complaint for business interruption coverage because “at this very early stage, it would be premature for this court [to] resolve the factual determinations put forth by defendant to dismiss plaintiff’s claims.” Taps & Bourbon on Terrace, LLC v. Those Certain Underwriters at Lloyd’s, London, No. 00375 (Pa. Ct. Com. Pl. Phila. Cnty. Oct. 27, 2020) (emphasis added). The complaint alleged that the tavern sustained business losses resulting from “the COVID-19 pandemic and . . . state and local orders mandating that all non-essential businesses be temporarily closed.” The order also recognized that “the law and facts are rapidly evolving in the area of COVID-19-related business losses.”
Interpretation of “physical loss of or damage to” property
One area of law that has developed is the interpretation of the phrase “physical loss of or damage to” property, which is commonly found in policies at issue in COVID-19 business interruption cases. Noting the import of the disjunctive “or” in the phrase “physical loss of or damage to” property, the court in Hill and Stout PLLC v. Mutual of Enumclaw Insurance Company, No. 20-2-07925-1 (Wash. Super. Ct. King Cnty. Nov. 3, 2020) held that the policy provided alternative means for coverage: (1) physical loss of property (the Physical Loss Option) and (2) damage to property (the Damage Option). The Washington state court found the Physical Loss Option ambiguous and, consequently, construed it in favor of the policyholder. Under this interpretation, the court concluded that a dental practice’s alleged inability “to see patients and practice dentistry” sufficed to trigger the Physical Loss Option for coverage under the policy.