In the last few weeks, since our last blog on this topic, another 50 cases have been filed seeking recovery of business-interruption losses from COVID-19. These include a case brought on behalf of adult entertainment clubs shut down by the virus-related closure orders (Rialto Pockets, et al v. Lloyd’s of London, Civ. No. 2:2020cv07709 (C.D. Cal. Aug. 24, 2020)), and a case claiming that covered governmental negligence in stopping COVID-19 caused the closure orders (Consolidated Restaurant Operations v. Westport Ins., Civ. No. 2020cv58095 (NY Sup. Ct. Aug 5, 2020)).

Additionally, more recent decisions have found that, if the insured does not allege physical structural alteration to, or loss of, property, coverage under a business-interruption policy is not triggered, even though that issue presents, as we previously discussed, factual issues that should theoretically not be addressed without at least some discovery. 10e, LLC v. Travelers Indemnity Co. of Connecticut, Civ. No. 2:20-cv-04418 (C.D. Cal. Aug. 28, 2020). The decision in 10e LLC seems to be contrary to other California law and even to another case against Travelers that was previously decided by the same court. Total Intermodal Services v. Travelers Property Casualty, 2018 WL 3829767 (C.D. Cal.). Two other courts reached similar decisions apparently based on the failure to plead any physical damage: Martinez v. Allied Ins. Co. (M.D. Fla.) and Turek v. State Farm Mutual Ins. (E. D. Mi.). These courts also made summary rulings based on the virus exclusion without any real reasoning. (Moreover, various other states, such as New Jersey, Missouri, and Washington, do, like the prior California case, allow recovery for business interruption even without structural damage to property.)

Regardless of the exact type of loss, the question of whether and how the loss resulted from COVID-19 would appear to be a factual one. But it now seems that the issue will only be resolved after more courts opine on it, and even then only at the appellate level. And following recent decisions such as 10e LLC, the need to plead physical loss or damage to property from COVID-19 in order to have any chance to recover for business-interruption losses seems even more paramount, especially since prior efforts to avoid a virus exclusion by claiming loss from governmental closure orders as opposed to loss caused by the virus have thus far not worked (e.g., Malaube v. Greenwich Ins., Civ. No. 1:20-cv-22615 (S.D. Fla. June 24, 2020).

The recent decisions discussed here and in our prior posts seem to have prompted insurers to continue to file motions to dismiss that challenge these obviously factually disputed issues. See, e.g., Milkboy v. Cincinnati Casualty Co., Civ. No.2:20 02036 (E.D.P.A. June 9, 2020); Atma Beauty v. HDI (D. Fla. July 14, 2020); Sandy Point Dental v. Cincinnati Ins. (N.D. Ill. Aug. 17, 2020); Benamex v. Merchants Mutual (D.N.J. July 22, 2020); Circus Circus NV, LP v. AIG Specialty Ins., No. 2:CV-20 No. 01240 (D. Nev. Sept. 1, 2020). Insurers also have launched a PR campaign to persuade the world that their business-interruption policies were never intended to cover pandemics such as COVID-19 and that it is improper to even file such claims because those claims will purportedly bankrupt the insurance industry.

But a recently filed complaint starts to flesh out the real reason why policyholders are so annoyed that carriers have refused to pay any COVID-19-related claims at all: the expansive promises carriers have made in their marketing materials, which promised that business-interruption coverage would provide peace of mind if a covered business was closed down due to damage. Jujamycn Theatres v. Federal Insurance Company, et al., Civ. No. 1:20-cv-06781 (S.D.N.Y. Aug. 25, 2020). In Jujamycn, the plaintiff cites a Chubb SEC filing actually acknowledging that there was a risk of pandemic prior to selling the policy at issue; yet the carrier is still seeking to avoid coverage. But the idea that insureds who have suffered staggering losses on the order of 50-80% of their revenues should now not file claims runs counter to basic notions of fairness and even fiduciary duties to the insureds’ shareholders. It is worth remembering that insurance companies said the same thing about environmental claims and asbestos: “We did not intend to cover these hazards.” But people buy insurance to cover the unanticipated. We can all agree that COVID-19 was unanticipated (though a pandemic of some sort was not), but the insureds should nonetheless have a right to recover.

Thus far, there have been only a handful of decisions on only one of a number of issues, namely whether actual damage to the structure of property is required for a potentially successful business-interruption claim. There are not yet any real substantive decisions on any of the exclusions commonly found in business-interruption policies. And most of the issues that will arise in these coverage cases are heavily factual and will need to be resolved after discovery, despite both sides’ apparent desire for a quick resolution.

Insurance companies have basically refused to pay any claims, even where the policy seems to cover all reasons for loss including COVID-19, such as with respect to claims under event-cancellation or trip and ski-pass insurance. Many such policies explicitly cover “contamination by virus,” but the carriers have not made many payments under these clauses, and the limits on these clauses will be hotly contested. Thus, we seem to be heading for years of litigation which may not provide the needed help for businesses that need cash now. Insurance policies are not exactly written in clear understandable English, and the outcome of all these cases is far from clear. It is certainly plausible that when a policy says it will cover a closure by an order of a civil authority, the insured will file a claim when the government closes its business.

As we debate the next round of stimulus bills, we should not lose sight of the value of having the government pay some of these claims, provide needed cash, and allow the recoupment of these funds over time. This is the standard model for all types of government aid in the face of a disaster, and it is unclear why it should not also apply here. Following the example of the Terrorism and Flood Insurance Funds, carriers could pay a percentage of the claims, receive reimbursement from the government, and then set up a premium fund from future premiums that would accumulate repayment of the funds paid out. But all legislative efforts on these fronts seem to have stalled in the face of lobbying by the insurance companies and their alleged outrage over purported constitutional issues. It is also worth remembering that many of the companies that are now refusing to pay COVID-19-related claims are mutuals that would be paying their own shareholders.

In any event, none of the above should deter policyholders from filing claims because insureds that do not do so will not be eligible for any relief, whether from further decisions by the courts or legislation.