COVID and Business Interruption Insurance

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Will your insurance cover COVID business interruptions?  There is no clear answer.  In the past few months, two judges, in the federal district court for the Western District of Missouri have reached opposite conclusions on whether the presence of COVID-19 satisfies a business interruption insurance policy requirement that there be a “direct physical loss.”  One judge is allowing the case to proceed to trial, the other judge dismissed the case for failure to state a claim.

In August 2020, Judge Bough held COVID-19 satisfied the plain meaning of “direct physical loss,” because the virus was a “physical substance” that “attached to and deprived Plaintiffs of their property, making it unsafe and unusable.” It did not matter that the premises were not physically altered by the virus because “even absent a physical alteration, a physical loss may occur when the property is uninhabitable or unusable for its intended purpose.” Studio 417, Inc. v. Cincinnati Insurance Company, No. 20-cv-03127-SRB, 2020 U.S. Dist. LEXIS 147600, at *1 (W.D. Mo. Aug. 12, 2020).  Judge Bough reached the same decision in K.C. Hopps v. Cincinnati Ins. Co., No. 20-cv-00437-SRB, 2020 U.S. Dist. LEXIS 144285, at *1 (W.D. Mo. Aug. 12, 2020) and Blue Springs Dental Care v. Owners Ins. Co., No. 20-CV-00383-SRB, 2020 U.S. Dist. LEXIS 172639, at *1 (W.D. Mo. Sep. 21, 2020).

In December 2020, Judge Ketchmark, made exactly the opposite decision.  Restaurants’ 80% reduction in business because of Covid-19 “stay-at-home” orders was not a result of “direct physical loss.”  Of note, the policy at issue expressly excluded bacteria and viruses – and the insured did not allege the virus was actually present on the property.  Zwillo V, Corp. v. Lexington Insurance Co., No. 4:20-00339-CV-RK, 2020 U.S. Dist. LEXIS 230672, at *1 (W.D. Mo. Dec. 2, 2020).

It is possible the express exclusion of viruses in the Zwillo policy, and the failure to allege the virus was “present” on the property made the difference in the outcome of that case.  It is also possible that Judge Bough’s decisions on motions to dismiss, are preliminary only.  The insureds still need to prove their cases at trial.  In the meantime, as of the date of this blog, the Studio 417 decision (which is less than 5 months old) has been criticized or distinguished in twelve opinions in at least nine other states.

Bottom line:  business interruption insurance coverage for damages caused by COVID-19 is extremely difficult to obtain.  Contact HLG if you would like to learn more.

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