Countless businesses across the country have been forced to close their doors as COVID-19 continues to spread. As business owners seek to recover losses suffered due to shelter-in-place orders, many business interruption insurance claims are being denied under the assumption that closed businesses have not experienced a “direct physical loss of, or damage to, property.” In turn, business owners are taking insurers to court.
There are currently thousands of pending court cases brought by insurance policyholders seeking coverage for COVID-19-related business interruptions. Some states are even considering bills that would require insurers to provide this coverage for pandemic-related claims. As these first-party property claims play out in jurisdictions across the country, Bennett Thrasher’s Insurance Claims Services practice is tracking rulings and watching closely as the definition of “direct physical loss” to property is interpreted. While some recent court decisions appear to favor insurers (see Gavrilides Management Company v. Michigan Insurance Company and Rose’s 1, LLC, et al. v. Erie Insurance Exchange), many cases remain uncertain, raising a multitude of questions yet to be answered.
Traditionally, business income loss coverage provides coverage for any business interruption suffered during a period of restoration. This is typically defined as a required suspension or delay in operations caused by a direct physical loss of, or damage to, property directly caused by covered peril. For example, if a hurricane damages a restaurant and causes it to shut down while the building is repaired, this policy would cover lost income until the business reopens.
What qualifies as “loss” varies by jurisdiction, adding a layer of complexity. The courts have often defined direct physical loss as the literal destruction of property that threatens structural integrity or function. In other scenarios, loss may include a contamination so pervasive that it causes the property to become uninhabitable. Therefore, it remains unclear whether or not COVID-19-related losses meet these conditions.
We are also seeing cases call on civil authority provisions as well as ingress and egress coverage. Civil authority provisions cover loss of income related to restriction of access to insured premises by a government or civil authority as a result of physical loss or damage to property not owned by the policyholder. Ingress and egress coverage deals with loss of income when the insured property itself is inaccessible as a result of covered peril or damage to another property. Under both of these provisions, however, the question still arises as to what constitutes a direct physical loss and whether the contamination caused by COVID-19 fits that definition.
We’re Here to Help
Bennett Thrasher’s Insurance Claims Services practice is following these cases closely and will keep you up to date on any meaningful developments. To learn more about how our specialists can support you during your claims process, or for any other business interruption questions, contact Chris Frederick by calling 770.396.2200.