Insurance And Covid-19 Cases

For Insurance Lawyers, Covid-19 has become a hot topic.  Hardly a day goes by that a client is not asking questions regarding their insurance policy and whether or not the policy covers losses stained due to Covid-19.  The National Law Review published an article recently that needs to be read by lawyers handling these Business Interruption cases.

The article tells us that the legal media have been inundated with articles by lawyers who represent policyholders and insurance companies discussing business interruption claims arising from the COVID-19 pandemic.  Some of this discussion has carried over into the mainstream media, including a recent Wall Street Journal article titled, “Restaurants v. Insurers Shapes Up As Main Event In D.C. Lobbying Fight.”  Much of the discussion focuses on two issues.  The First, property insurance policies require “direct physical loss or damage” to property (either to the insured property, or non-insured property within a certain distance of the insured property for a coverage called “civil authority”).  A virus has never been found to cause damage to property.  Second, most, but not all, of these policies have a virus exclusion.  We are not writing here about those issues.  Plenty of barrels of ink has been already spilled on those issues.  But I haven’t seen any authors write about another exclusion that seems likely to apply to these claims if policyholders can somehow convince a court that there was “direct physical loss or damage” to property: it is the the ordinance or law exclusion.

The ordinance or law exclusion typically provides that the insurer “will not pay for loss or damage caused directly or indirectly by . . . the enforcement of or compliance with any ordinance or law . . . regulating the . . . use . . . of any property . . . .”  That seems to be precisely what many of the governmental orders being issued do.  For restaurants, for example, government orders typically regulate the use of the business premises by limiting operations to takeout and delivery, prohibiting dine-in service.  At some point it is expected that dine-in service will be allowed, but limited to tables spaced six feet or more apart, as has begun occurring in some other countries.  With respect to other businesses, governmental orders may limit their operations to curbside delivery of items purchased by phone or online, or require or urge them to have employees work from home except for certain limited operations that can only be conducted in the office.

Two aspects of the language of this exclusion may cause insurers to rely on it, particularly those that do not have a virus exclusion directly on point.  First, the exclusion typically has an anti-concurrent causation clause providing that “such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”  In other insurance coverage lawsuits, this type of language has quickly put an end to debates about whether there was some other cause of the loss.  After Hurricane Katrina, for example, policyholders argued that negligence in maintaining the levees in New Orleans was the cause of the property damage, not the flood.  Courts rejected that position for multiple reasons, including the anti-concurrent causation clause.

Second, the ordinance or law exclusion typically states that “this exclusion, Ordinance Or Law, applies whether the loss results from: (a) An ordinance or law that is enforced even if the property has not been damaged . . . .”  This language may allow courts, if they so choose, to sidestep the issue of “direct physical loss or damage” if they find that the exclusion applies.

One lawyer for the insurance company has said privately, “file the lawsuits.”  This lawyers opinion is that there will be relief, if not from the insurers directly, then through the insurer by way of Legislation that will require insurers to pay and then be reimbursed by the government.

Time will tell.

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