More than a year has passed since COVID-19 first plagued the United States and impinged on the health of more than 34 million Americans. Hundreds of thousands of businesses have shuttered due to the pandemic. Policyholders have relied, and will continue to rely on their business interruption insurance policies to respond to their pandemic-related losses. In these unprecedented times, trillions are at stake with many policyholders calling on the courts to protect their rights.
Reed Smith’s Insurance Recovery Group recently launched a Thomas Reuters column covering cutting-edge topics in insurance from the policyholder perspective. The first column article titled “The appeal of COVID-19 business interruption appeals” discusses the current appellate landscape of COVID-19 business interruption cases.
Brief overview of appellate landscape
The only appellate court that has issued a ruling is the 8th U.S. Circuit Court of Appeals in Oral Surgeons v. Cincinnati Insurance. There, the 8th Circuit affirmed the Iowa district court’s decision to dismiss the insured’s complaint, reasoning that dismissal was warranted where the policy required direct “accidental physical loss or accidental physical damage” and the complaint did not allege any physical alteration of property. The complaint, rather, only pled “generally that Oral Surgeons suspended non-emergency procedures due to the COVID-19 pandemic and the related government-imposed restrictions.” Given the particular policy language, allegations of that complaint, and lack of a “physical alteration” requirement under the law of most states, the decision is not expected to have a significant impact (if any) on pending appeals.
Appeals remain pending in California, District of Columbia, Florida, Illinois, Indiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Oklahoma, Pennsylvania and Wisconsin. No state appellate court has yet rendered a decision.
The article flags five pending appeals for policyholders to keep an eye on, as they will likely shape the future of the law surrounding insurance coverage for COVID-19 business interruption losses.
Appeals to keep an eye on
#1 – The early state appeal
In Inns by the Sea v. California Mutual, a California Court of Appeal has been tasked with deciding whether an insuring agreement affording coverage for “direct physical loss of or damage to” property requires a showing of “physical alteration” to real property and whether allegations that property has become unsafe for its intended use due to the physical presence of COVID-19 is sufficient to allege “direct physical loss of or damage to” property for purposes of a demurrer.
#2 – The merits appeal
The second appeal to watch is Choctaw Nation v. Lexington—the Supreme Court of the State of Oklahoma will determine whether “direct physical loss” includes property rendered unusable for its intended purpose and whether virus exclusions in the policies “contemplate pandemics, or suspected, imminent, threatened, or fear of viruses.”
#3 & #4 – The virus exclusion appeals
Gavrilides Management Company v. Michigan Insurance—a Michigan Circuit Court appeal and Nail Nook v. Hiscox Insurance—an appeal pending in Ohio’s Eighth District Court of Appeals, involve appeals from lower court decisions ruling that virus exclusions barred coverage.
#5 – One of the first heard
Mudpie v. Travelers, an appeal pending in the 9th U.S. Circuit Court of Appeals, will most likely be the second COVID business interruption case decided by a federal appellate court.
Cutting-edge issues in insurance
Reed Smith will continue to cover timely insurance topics in its Thomson Reuters column. The column launched at the end of June and will be published every other month, with a special edition scheduled for July. The articles will be distributed in a variety of Thomson Reuters products and services, including Reuters.com, Westlaw Today, print and digital Westlaw Journals, social media platforms, and the Thomson Reuters Legal Solutions blog.
Stay tuned for the next article which will cover property insurance coverage for natural disasters. This article, which coincides with the start of the wildfire and hurricane seasons, will offer timely advice for policyholders and outline ways to avoid common insurance coverage pitfalls.