Courts across the country have disputed the most important COVID-19 coverage issue as to whether a policyholder's inability to fully operate his business due to COVID-19 restrictions would meet the policy requirement to cover business interruptions that the "loss" must be a result of a "closure of the business" caused by "direct physical loss of or damage to covered property."
On Monday, February 22, 2021, a federal judge in Illinois in a well-reasoned opinion and decision in COVID-19 multi-district disputes answered the most important question of COVID-19 coverage affirmatively and stated that restaurants, bars, theaters and others hospitality institutions that in part appeared to have suffered a "physical loss" caused by COVID-1
The suit born of this important statement and order stems from the MDL process's selection of three (3) bellwether cases – all restaurants – from the approximately 40 Society MDL cases. In these cases, the society in summary denied claims for business interruptions and when the policyholders brought an action, the society submitted proposals for rejection and summary assessment proposals.
In re: Society Opinion and order frame the MDL questions as follows:
The basic questions at stake in this dispute are how to classify the interruption that has occurred here, and if this particular interruption is covered by the policy. Regarding: Society 2021 WL 679109, at * 2.
The court denied the Society & # 39 ;s movements to dismiss and summarize court proposals regarding claims for business interruption coverage and allegations of disloyalty brought under the Illinois Insurance Code. The court granted a summary judgment to the provisions on civil authority and pollution and denied, in one of the three cases in other cases, coverage under the policy clause on Sue and Labor. See Re: Society 2021 WL 679109, at * 1.
The Business Interruption Clause Clause:
We will pay for the actual loss of business income you maintain due to the necessary suspension. of your "business" during the "restoration period." The suspension must be caused by direct physical loss of or damage to covered property in the described premises. The loss or damage must be caused by or caused by a covered cause of loss. (Emphasis in original.)
The policy further defines a "covered cause of loss" as a "direct physical loss unless the loss is excluded or limited under this form of coverage." Society's policy did not include a virus exclusion.
Society claimed that there was no coverage under the above policy clause because the phrase "direct physical loss of or damage to covered property" required an actual change or alteration of physical property and that "Losses" in restaurants were not "physical" because:
[T] chairs, stools, walls and floors, hobs and sinks remain in good condition; in fact, the plaintiffs have been able to use the premises to conduct a certain amount of business. In re: Society 2021 WL 679109, at * 9.
In response to this argument, the court wrote, "[b] a reasonable jury may find that the plaintiffs suffered direct" physical loss of property in their premises. The Court explained several reasons for this conclusion. First, the COVID-19 pandemic caused closure orders that required social distancing, which in turn introduced a "physical" limit to the use of the entire premises and the number of people who could live on the premises at the same time. If the restaurant could expand its physical space, the court wrote, the restaurant would then be able to serve more guests and the "loss" would at least partially be mitigated. The court concluded that "in this situation" the loss is "physical" – or at least a reasonable jury can do it. "(Emphasis in the original.)
Second, by dismissing society's arguments, the Court applied universal principles of contract construction to the phrase" direct physical loss of or damage to covered property "and interpreted the disjunctive language of policy " or " to mean that the phrase "physical loss" differed from the phrase "physical injury". ” Id. at 8. The Court found:
It would be a matter if the coverage was limited to direct physical "injury." But the coverage also extends to direct physical "loss of" property. The appellants therefore do not have to invoke or show a change in the physical properties of the property.
In short, this opinion and decision found that "loss of physical use" was sufficient to adequately cover the loss of business income caused by COVID-19 restrictions under a risk-aversion policy with commercial interruption clause. Explained differently, policyholders who sue for loss of business income due to the pandemic need not claim that the property that has suffered a direct physical loss has been physically altered or altered in any way.
This is a significant order and a significant gain and far-reaching victory for policyholders claiming loss of corporate income caused by COVID-19 pandemic restrictions.