The Vermont Supreme Court on Friday became the first state high court to rule in favor of policyholders in disputes over covid-19-related business interruption, held a split decision that the virus may have caused direct physical harm.
3-2 verdict in Huntington Ingalls Industries Inc. et al. v. Ace American Insurance Co . et al. reversed a trial court that had dismissed a lawsuit filed by the Newport News, Va.-based company, described in the ruling as the largest military shipyard, and its captive, Huntington Ingalls Industries Risk Management LLC, against its reinsurers, which included Chubb Ltd. unit Ace American and many others.
The decision follows pro-insurance rulings by state supreme courts in Iowa, Massachusetts, Oklahoma, South Carolina, Washington and Wisconsin, as well as by numerous federal district and appeals courts on the issue.
The ruling ruled that the complaint sufficiently alleges that the virus causes direct physical harm. “The virus that causes covid-19 has always been present at the insured’s shipyards” and attaches itself to surfaces, the judgment states.
“This process by which the virus ‘adheres’ to surfaces caused ‘injurious physical effects’ that ‘altered and impaired the function of the tangible material dimensions’ of the property,” the ruling said, citing the complaint.
Because of this change, the property cannot function for its intended purpose, and to remedy these physical changes, the insured will take “steps involving physical changes to its insured locations,” such as installing barriers.
“Taken together, these allegations in the complaint adequately allege that the virus physically altered property in the insureds’ yards when it attached to surfaces,” the ruling said, reinstating the lawsuit and remanding the case for further proceedings.
The minority opinion stated that “as a matter of law, human-generated droplets containing SARS-CoV-2 cannot cause ‘direct physical loss or property damage’ under this policy. No future litigation can change that reality.”
Huntington Ingalls said in a statement, “We believe the court correctly applied Vermont law with respect to pleading standards and insurance interpretation, and we thank the court for its careful consideration of the issues. We look forward to moving forward with the case in Vermont Superior Court.”
Commenting on the ruling, Marshal Gilinsky, a shareholder at Anderson Kill PC, of New York, who had filed a brief supporting Huntington United Policyholders, a policyholder advocacy group, said in a statement: “The Vermont Supreme Court’s careful reasoning and adherence to pre- Pandemic precedent is a powerful rebuttal to the all-too-common conclusion that the harm caused by covid-19 does not constitute “direct physical loss or damage.”
Chubb said in a statement, “As a matter of policy, we do not comment on legal matters.”