A federal court has held that whether an insurance policy covers business interruption losses from COVID-19 depends on a factual determination of whether the virus can stick to surfaces. The case is among the first that addresses the enforceability of an insurance policy based on whether droplets containing a microscopic virus caused property damage. ABA Litigation Section leaders advise that the answer to this question will require significant discovery and potentially a battle of the experts.
Does Virus Cause a Physical Loss as Required for Property Damage Coverage?
In Studio 417, Inc. v. Cincinnati Insurance Company, the plaintiff business owners brought a class action against an insurance company seeking property damage coverage based on the presence of COVID-19 at their places of business and government orders requiring their businesses to close due to the virus. The plaintiffs claimed the virus rendered their physical property unsafe and unstable, forcing them to suspend or reduce business on their premises. The insurance company sought dismissal of the claim, arguing that its policies covered physical losses only.
The U.S. District Court for the Western District of Missouri denied the insurance company’s motion based on the language in the insurance policies and the complaint. The court noted that the insurance policies provided for coverage for “physical loss,” but did not define the term “physical loss.” The complaint alleged that COVID-19 “is a physical substance” that lives on physical surfaces and travels through the air.
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