Why Can’t Reading the Policy Be a Thing?

I read an article in the New York State Bar Association’s Commercial and Federal Litigation Section‘s magazine, the NY Litigator, Summer 2020, Vol. 5, No. 2, called “A Guide to Insurance Coverage for Business Losses Arising from the COVID-19 Pandemic,” by Bradley J. Nash. The article discusses how there may be coverage under business interruption insurance provisions.

What the article fails to do, and what many policyholder-side articles fail to do, is focus on the purpose for the insurance policy and the actual language contained in the policy. We have written extensively on this on both my prior firm’s Insurance and Reinsurance Disputes Blog and in other publications.

While every policy is different and each policy has to be reviewed on its own merits and in the context of the facts and circumstances involving a claim, the fact is that most business interruption provisions are found in business property policies and very clearly respond only to actual property damage. While the article makes it clear that physical loss of or damage to covered property by a covered cause of loss is the typical formula, it goes on to suggest that the novel coronavirus causes physical damage.

While the author considers the position of most insurers to be the “narrow view,” the fact is that the majority of the courts, including at least two or three courts that have reviewed COVID-19 coverage claims, all agree that direct physical loss of or damage to covered property means just that. Actual structural damage. Damage that you see from a hurricane, wildfire, earthquake and similar disasters. That is what these insurance polices protect against.

And when you get to civil orders, the same requirement of direct physical loss of or damage to property exists in most policy formulations. That a government official in a civil order says that there is “property damage” caused by the novel coronavirus does not make it so. The governmental actions were brought to stop the spread of COVID-19, not because property had been damaged because of a virus. The only civil orders that trigger business interruption coverage are those that are issued because of actual direct physical loss of or damage to property in close proximity to the insured’s premises and that the insured’s business has been interrupted because of that civil order. Without direct physical loss of or damage to property, there just is no coverage.

So I agree whole-heartedly with the author. Get a copy of the policy and read it. And then you will understand that it protects your property from direct physical damage, not from a virus that does not cause damage to property.