Can businesses recover losses arising from closure due to the corona virus global pandemic? Does property insurance provide business interruption coverage?
Business interruption coverage usually requires that there be a “covered loss” or “direct physical loss of or damage to the property.” One case examining the issue defined “physical damage” as “a distinct, demonstrable, and physical alteration” of a property’s structure. Gregory Packaging, Inc. v. Travelers Property Casualty Company of America, Civ. No.: 2:12-cv-04418(WHW)(CLW), in the U.S. District Court of New Jersey (2014)(citing Port Authority of N.Y. and N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 235 (3d Cir. 2002)). An insured property can sustain “physical loss or damage” without structural alteration. The court concluded that ammonia, a dangerous gas, constituted a “direct physical loss,” sufficient to trigger coverage under the ‘ policy.
Some property insurance policies contain a specific exclusion (Form CP 01 40 07 06 or Form BP 06 01 01 07) that seeks to exclude coverage for “loss or damage caused by or resulting from any virus, bacterium or other microorganism that Induces or is cap able at Inducing physical distress, illness or disease.”
Long before the corona virus pandemic arose, the trend in all-risk policies was not to require specific physical damage. Up until fairly recently, “[t]he modern interpretive trend is liberalizing the meaning of direct physical loss to focus upon loss of use as opposed to direct physical loss involving physical alteration.” In one case, the Supreme of Colorado has held that gasoline fumes seeping into a building structure have been determined to be not just physical damage, but physical loss. Relying on that precedent, the U.S. District Court for the District of New Jersey held that “[w]hen the presence of large quantities of asbestos in the air of a building is such as to make the structure uninhabitable and unusable, then there has been a distinct loss to its owner[.]”
Yesterday, a restaurant in the New Orleans French Quarter filed suit seeking losses for business interruption losses based the COVID-19 global pandemic. on the claim that the coronavirus’ contamination of surfaces resulted in property damage. The lawsuit, styled Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s of London, et al. (La. Dist. Court, Orleans Parish), seeks a declaratory judgment that an “all risks” property insurance policy issued by Lloyd’s of London must cover losses resulting from the closure of the restaurant following an order by the Governor of Louisiana restricting public gatherings and the Mayor of New Orleans’ order closing restaurants.
“The virus is physically impacting public and private property, and physical spaces in cities around the world,” Oceana Grill’s attorneys wrote. “Any effort by Lloyd’s to deny the reality that the virus causes physical damage and loss would constitute a false and potentially fraudulent misrepresentation that could endanger policyholders and the public.”
This information should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.