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Vermont Supreme Court Finds COVID-19 Can Damage Property



As reported on this blog, policyholders have long held the view that the presence of substances such as COVID-19 and its causative virus SARS-CoV-2, which render property dangerous or unfit for normal business operations, should be sufficient to trigger coverage under commercial general risk insurance , which has been the case for more than 60 years.

But many courts, particularly federal courts, despite decades of pro-policyholder precedent, have adopted the view that “viruses harm people, not [property].” Thirty-one months after the start of the pandemic, the first state Supreme Court has gone in a different direction, in accordance with greater weight to policyholder precedent.

On September 23, 2022, the Vermont Supreme Court became the first state supreme court to reject the notion that material questions of fact concerning the effect of a virus on property can somehow be decided without evidence, without experts, and without anything more than bones. accusations. IN Huntington Ingalls Industries, Inc. v. Ace American Insurance Co., No. 2021-173, __ A.3d __, 2022 WL 4396475 (Vt. Sept. 23, 2022), the court thoroughly analyzed the distinction between “direct physical loss” and “direct physical injury” to conclude that the presence of SARS-CoV -2 on property can actually cause “damage” to that property as the term is used in commercial general insurance. The court also concluded that the remedial measures taken by the insured to continue its shipyard operations, as far as possible, are “repairs” within any reasonable meaning of that word.

The court analyzed the operative policy language, including consideration of how similar language has been applied by other courts in the context of covid-19 and SARS-CoV-2. The court reiterated the plaintiff’s detailed allegations about how SARS-CoV-2 affected its property, emphasizing that it was not appropriate to resolve issues of fact on a motion for judgment on the pleadings. Unlike many of the anti-coverage decisions that have preceded it Huntington Ingalls, the court applied the correct standard of pleading which explained:

To end this litigation based on the limited information before us, simply because the alleged facts and conclusions thereof may seem unlikely at first based on what we think we know about COVID-19, would be premature. . . . Although the science when fully presented may not support the conclusion that the presence of a virus on a surface physically alters that surface in a distinct and detectable way, It is not the court’s role at this stage of the proceedings to consider facts or evidence. We cannot say without a doubt that the virus does not physically damage surfaces in the way that the insured claims.

Huntington Ingallsat ¶¶ 45–46 (emphasis mine; internal citations and quotation marks omitted).

Huntington Ingalls is one of a series of recent appellate decisions holding that it is premature to dismiss covid-19 interruption lawsuits without consideration of evidence regarding the existence of the virus and the effect of the virus on the insured property, with due consideration of the policyholder’s pleading of disputed issues of fact that requires resolution only after further procedures. These decisions send a clear signal that insurers’ early success in covid-19 business interruption litigation may be coming to an end. See e.g. Tarrar Enterprises, Inc. v. Assoc. Inside. Corp., ___ Cal. Rptr. 3d ___ (Cal. Ct. App. 2022) (reversing dismissal of covid-19 business interruption lawsuit); Marina Pac. Hotel and Suites, LLC v. Fireman’s Fund Ins. Co.296 Cal. Rptr. 3d 777 (Cal. Ct. App. 2022) (reversing dismissal of covid-19 business interruption lawsuit); Cajun Conti LLC v. Certain Underwriters at Lloyd’s, London2022 WL 2154863 (La. Ct. App. June 15, 2022) (same); see also Baylor College of Medicine v. XL Ins. Am., Inc.No. 2020-53316-A (Tex. Dist. Ct. Harris Cty. Aug. 31, 2022) (jury award awarding $48.5 million in business interruption coverage for covid-19 losses).


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