by: Robin Loeb
As businesses across the country have been forced to close their doors because of the COVID-19 pandemic, the question of whether business interruption or civil authority insurance coverage is available to protect business owners against economic losses will become a fiercely litigated issue. The typical “business interruption” policy insures against loss resulting directly from interruption caused by physical loss or damage by a peril. Historically, those perils have included events like fires, hurricanes and other forces that cause obvious physical damage to property. There is, however, precedent finding that airborne contaminants, like ammonia contamination or the presence of E. coli bacteria, qualify as perils causing direct physical loss. Since COVID-19 is understood not only to be airborne, but to remain on surfaces for a period of time, a reasonable argument can be made that it constitutes property damage.
Separately, “civil authority” coverage applies when a civil authority orders that an insured property be closed. Governors and mayors across the country have restricted public gatherings, issued stay-at-home orders, and ordered restaurants to be closed, or limited to pick up and delivery options, triggering the argument that civil authority coverage applies. This kind of coverage was hotly contested in the courts when businesses suffered after the 9/11 attacks in New York City and at the Pentagon.
In what appears to be the first lawsuit pertaining to insurance coverage and the coronavirus, the Oceana Grill in New Orleans filed suit against Lloyd’s of London seeking a declaratory judgment that the insurance carrier must pay for its losses arising from the coronavirus pandemic. Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s of London, et al. (La. Dist. Court, Orleans Parish). A similar suit has also been filed against Hartford Fire Insurance Co. by the high-profile restauranteur Thomas Keller, owner of California’s French Laundry and Bouchon Bistro, in Napa County Superior Court. The decisions in these cases, which raise business interruption and civil authority coverage, will be important to watch as businesses across the country continue to struggle as a result of the virus itself and the government mandates issued as a result.