The COVID-19 pandemic has been devastating for businesses across the country. Just a few statistics put the pandemic's rapid and expansive damage into perspective. Initial weekly jobless claims went from 280,000 on March 14 to 6.9 million on March 28. And this trend shows no signs of slowing. Indeed, certain economists and government officials predict that unemployment could reach a staggering 15%, and that our nation's GDP could fall by as much as 34% between April and June. Nor is there any immediate relief in sight. According to a federal plan for tackling the pandemic, it could last 18 months, with additional outbreaks coming in multiple waves.

In light of these immediate and potentially extended challenges, businesses undoubtedly will—and should—ask themselves whether their commercial property insurance policies provide business interruption coverages for virus-related losses. It seems that for those who already have submitted claims for coverage, their insurers have largely denied those claims as either falling outside the relevant policy's coverage provisions, or falling within one or more policy exclusions. These coverage denials have sparked a flurry of lawsuits filed by disgruntled policyholders across the country, including at least three proposed class actions. In the coming months, it is reasonable to expect that insurers will face dozens (if not hundreds) more of these coverage actions. Foreseeing as much, two policyholder-plaintiffs even have asked the U.S. Judicial Panel on Multidistrict Litigation to consolidate all these cases going forward, and thereby preclude the possibility of different courts in different states reaching different results with respect to the same key insurance issues.

While the ultimate determination of coverage will rest on the specific language of the policy at issue in each case, there are several common threshold issues that the courts in these actions may need to consider. This article provides an overview of those issues, as well as a discussion of certain key legislative initiatives that separately could have a huge impact on insurers' liability for coronavirus-related business income losses.

  • Does the coronavirus cause "direct physical loss or damage"?

The first key threshold coverage issue that courts likely will need to consider is whether an insured's coronavirus-related losses are attributable to or flow from "direct physical loss or damage" to insured property, as is required by virtually every commercial property policy that provides business interruption coverage. Unsurprisingly (and for obvious reasons), insurers have generally taken the position that the presence of the coronavirus neither causes nor constitutes "direct physical loss or damage." Policyholders have pushed back, arguing that the virus indeed has caused "direct physical loss or damage," or alternatively, that the policy language setting forth this prerequisite to coverage is ambiguous and should be construed in their favor.