As the coronavirus pandemic continues to lead to the closing of many bars, restaurants, movie theaters and other venues, businesses have predictably turned to their insurance policies to cover coronavirus-related losses. In the last month alone, businesses have filed several insurance coverage lawsuits concerning these issues, which may have important ramifications on whether policyholders can rely on their insurance for virus-related losses moving forward.
In mid-March, New Orleans restaurant Oceana Grill filed a lawsuit in Louisiana state court seeking coverage under its property and business interruption policy due to mandated closures resulting from COVID-19. See Cajun Conti LLC, et al. v. Certain Underwriters at Lloyd’s London et al., case number 2020-02558, in the Civil District Court for the Parish of Orleans, Louisiana. Like many such policies, Oceana’s requires “direct physical loss” to property, and insurers often take the position that viruses such as the coronavirus do not result in direct physical property loss, since there is not a demonstrable alteration to the covered property. However, Oceana argues that this requirement is satisfied by COVID-19, which can be present in buildings and on surfaces, and a ruling in Oceana’s favor on this issue would create significant authority for policyholders nationwide.
Similarly, the Chickasaw and Choctaw nations filed separate lawsuits against their insurers in Oklahoma state court, seeking coverage for ongoing COVID-19 related losses. See Chickasaw Nation Department of Commerce v. Lexington Insurance Co., et al., case number cv-20-35, in the District Court of Pontotoc County, Oklahoma; Choctaw Nation of Oklahoma v. Lexington Insurance Co., et al., case number cv-20-42, in the District Court of Bryan County, Oklahoma. The nations argue that their properties, which are used in connection with multiple commercial businesses and services, have been damaged by the coronavirus because they can no longer be used for their intended purpose. In addition, the tribes also seek to trigger their civil authority coverage, which typically responds when a civil authority prohibits access to the insured property. Again, a ruling in the tribes’ favor would confirm broad coverage is available to policyholders for coronavirus-related losses.
In late March, several restaurants sued their insurers in California state court, arguing that they are entitled to civil authority coverage based on the local health officer’s order directing all nonessential businesses to cease activities amid the pandemic. See French Laundry Partners LP et al. v. Hartford Fire Insurance Co. et al., in the Superior Court for the State of California, Napa County. (The restaurants also cite to the health officer’s order, which recognizes that COVID-19 causes physical damage to property.) Interestingly, the restaurants’ complaint notes that the applicable insurance policy does not contain an exclusion for virus-related losses. Many insurers added specific exclusions for such losses in recent years, particularly after the SARS epidemic, and the absence of such an exclusion can be relied upon as a factor in favor of coverage.
A collection of Chicago movie theater and restaurant owners also recently sued their insurer in Illinois federal court, alleging that there is coverage for losses resulting from an order requiring the closure of their businesses. See Big Onion Tavern Group LLC, et al v. Society Insurance, Inc., case number 1:20-cv-02005, in the US District Court for the Northern District of Illinois. As in the French Laundry Partners case, the owners argue that if the insurer wanted to exclude pandemic-related losses, it could have done so through an exclusion for loss caused by a virus. The owners claim that the absence of such an exclusion shows that there should be coverage, and that if COVID-19 could never create direct physical property loss, such an exclusion would never be needed.
More recently, a sports bar in Tampa Bay, a Florida dive shop and an Indiana theater filed suit against their insurers in various state and federal courts dealing with these same issues. See Prime Time Sports Grill Inc. v. Certain Underwriters at Lloyd’s London, case number 8:20-cv-00771, in the US District Court for the Middle District of Florida; Mace Marine, Inc. v. Tokio Marine Specialty Insurance Co., case number 20-CA-000120-P, in the Circuit Court of Monroe County, Florida; Indiana Repertory Theatre, Inc. v. The Cincinnati Casualty Co., case number 49D01-2004-PL-013137, in the Marion County Superior Court, Indiana.
It is no surprise that there has been a steady increase in coronavirus-related insurance coverage litigation, which we expect will continue in the coming months. While Cooley recently published two blog posts on the possible insurance implications of the continuing spread of the coronavirus and a checklist for businesses on coronavirus-related insurance losses, insurers and policyholders alike also need to understand the positive or negative ramifications these cases may have on coverage. In the interim, policyholders should continue to evaluate their existing insurance policies, carefully consider the policies’ notice requirements, and start to prepare to quantify losses and preserve all information needed to calculate such loss.
The Cooley insurance team will continue to monitor new lawsuits and provide updates on further developments as these important issues are litigated in state and federal court.