While the coronavirus itself may be novel, business interruption insurance lawsuits are not. Accordingly, in the initial wave of lawsuits arising from the pandemic, both business owners and courts throughout the country seemed trapped in a fixed mindset about this new type of case. Reeling from loss and damage, business owners assumed that since their businesses had been interrupted by COVID-19, their claims had merit. Courts, meanwhile, reading insurance policies narrowly, dismissed claims related to the virus for lack of tangible alteration to business property. In recent months, however, litigators have embraced more creative arguments to persuade the courts to hear their cases. The courts have, in turn, opened their ears (and maybe their hearts, too) to the plight of American businesses that have suffered on a truly historic scale.
In the beginning of the pandemic, the vast majority of COVID-19 business-interruption claims have been dismissed for failing to meet the requirement of “direct physical loss or damage” commonly found in all-risk insurance policies. This requirement is typically met by establishing losses due to tangible damage to business property. Given the “invisible” or “intangible” nature of an airborne virus, no matter how pervasive or deadly, and its inability to damage property physically, it is not surprising that initially the courts were reluctant to recognize COVID-19 within the existing framework. A recent notable exception came in Studio 417 v. Cincinnati Insurance, No. 20-cv-03127-SRB (W.D. Mo. 2020), in which the district court denied the insurer’s motion to dismiss on the basis that physical loss did not only cover “actual, tangible, permanent, physical alteration” as described in the policy. It also found plausible Plaintiff’s argument that “COVID-19 particles attached to and damaged their property, which made their premises unsafe and unusable.”
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