What is happening with ‘Business Interruption’ Claims
The case of a series of consolidated lawsuit against 10 insurers for ‘business interruption’ during the pandemic in the U.S. district assigned to the Judge Barbara J. Rothstein leaves room for a deeper discussion on claims interruptions.
In mid-March of this year, the judge decided to dispose some lawsuits filed presented by a number of professional associations, retailers and even the Seattle Symphony Orchestra.
Rothstein mentioned in her ruling that each of the lawsuits involved “all-risk” policies that provided coverage against “direct physical loss of or damage to property.” The argument was based on the fact that the policies involved did not define the term “loss”. In previous rulings, the Insurance law doctrine has held that all-risk policies are intended to cover damage to property, but not for economic loss.
According to this same principle, numerous courts have held that the Pandemic did not trigger direct physical loss or damage.
This judge decision represents one of the many rulings against policy holders that are look for insurance coverage with pandemic related losses. In recent numbers, according to a COVID-19 litigation tracker of the University of Pennsylvania, federal courts have dismissed 282 lawsuits in total.
According to the litigation tracker, 27 state court lawsuits were dismissed with prejudice (the court intends for that dismissal to be final in all courts) and in 27 cases motions to dismiss (formal request for a court to dismiss a case) were denied. In conclusion, Policyholders who were able to keep their lawsuits in state court have had better results. In fact, two plaintiffs with lawsuits that have been heard by Washington state courts—one in King County and one in Spokane County—defeated insurer motions to dismiss.
Rothstein took those rulings in consideration for her order mentioning that those rulings are “unpersuasive.” Meaning, the arguments in those rulings were not strong enough to change her mind about the final ruling.
The meanings of words in claims
The Spokane County Superior Court determined that “loss” and “damage” have distinct meanings and that loss can be understood to cover situations where property cannot be used for its intended purpose.
Rothstein stated regarding this matter: “The reasoning that ‘loss’ could plausibly mean something similar to ‘deprivation of use’ discounts the preceding term ‘physical’. “The Court has already determined that COVID-19 does not physically alter the insured property.”
She rejected arguments that the virus exclusion was barred by the doctrine of regulatory estoppel. According to IRMI the Doctrine of Regulatory Estoppel stipulates that “a form of equitable estoppel (exists) whereby insurers are prevented, or “stopped,” from asserting an interpretation of an insurance policy provision that is contrary to the insurer’s explanation of that policy provision to state insurance regulators when the insurer originally sought approval of the policy form from the state department of insurance.”
The policyholder losing streak in COVID-19 business-interruption claims appear to be gaining momentum. The litigation tracker concludes that during the month of May, insurers were granted 49 motions to dismiss or for summary judgment, with only six cases decided in favor of policyholders.
Are Businesses losing their Covid-19 Lawsuits?
This case we just analyzed, showed us that Insurance Companies are going to fight business interruptions caused by the Pandemic. The predictable scenario is that the easiest cases to dismiss are those where the coverage for business interruption are explicitly caused by damages to the property itself.
Business owners nevertheless argue that mandatory quarantines did constitute an unavoidable ‘interruption’ and hence were the cause of damages to the business.
As the pandemic slows down, Business interruption claims will keep coming into the spotlight. Each ruling and jurisprudence applied will shape the insurance industry towards more precise language and policies.