U.S. District Court Judge Stephen Bough for the Western District of Missouri ruled on August 12 that plaintiff insureds can pursue COVID-19 related business income loss claims under standard casualty and property policies.
Many U.S. insurers have, so far, taken a firm stance that COVID-19 related losses aren’t covered by property policies because the virus does not cause “physical loss or damage” to property which is covered. This is a threshold issue for those seeking to secure insurance proceeds under policies which provide business interruption coverage. Insurers claim that the presence of the virus and mandatory business closures due to COVID-19 do not constitute “physical damage” or “physical loss” to property.
The court, in its ruling, denied an insurer’s motion to dismiss a lawsuit, ruling that a group of Missouri restaurants and hair salons can proceed with claims to recover losses due to business interruption since the term “physical loss,” which usually isn’t defined in insurance policies, should be broadly construed:
Upon review of the record, the Court finds that Plaintiffs have adequately stated a claim for direct physical loss. First, because the Policies do not define a direct “physical loss” the Court must “rely on the plain and ordinary meaning of the phrase.” The Merriam-Webster dictionary defines “direct” in part as “characterized by close logical, causal, or consequential relationship.” “Physical” is defined as “having material existence: perceptible especially through the senses and subject to the laws of nature.” “Loss” is “the act of losing possession” and “deprivation.”
Applying these definitions, Plaintiffs have adequately alleged a direct physical loss. Plaintiffs allege a causal relationship between COVID-19 and their alleged losses. Plaintiffs further allege that COVID-19 “is a physical substance,” that it “live[s] on” and is “active on inert physical surfaces,” and is also “emitted into the air.” COVID-19 allegedly attached to and deprived Plaintiffs of their property, making it “unsafe and unusable, resulting in direct physical loss to the premises and property.” Based on these allegations, the Amended Complaint plausibly alleges a “direct physical loss” based on “the plain and ordinary meaning of the phrase.” (Internal citations omitted).
A potential roadmap has been created by the decision for policy holders who have lost money because of COVID-19.
“It’s a huge decision for policyholders to use as persuasive authority in other cases,” said Kim Winter of Lathrop GPM. “It could be the difference between businesses going out of business if there’s no insurance money,” Winter said.