As businesses scramble to sort out their financial futures amid the coronavirus pandemic, insurance coverage for business interruption will be one of the primary sources companies look to for financial stability. While each situation depends on the particular language of the policy involved, commercial property insurance policies often contain business interruption coverage. These endorsements may provide protection for losses resulting from suspension of, or negative impact on, business operations due to, among other things: (i) physical loss or property damage to the insured’s own property; (ii) physical loss or property damage to a receiver’s (customer’s) or supplier’s property; or (iii) orders of civil authority prohibiting access to property due to physical loss or property damage.
Whether the coronavirus implicates certain of these coverages is about to play out for the first time in a Louisiana trial court. On Monday, March 16, a New Orleans restaurant, Oceana Grill, filed suit against Lloyd’s of London syndicates in Orleans Parish District Court. The restaurant is seeking a declaratory judgment that its Lloyd’s “all-risk” property insurance policy provides coverage for civil authority shutdowns of restaurants in the New Orleans area due to physical loss from coronavirus and that the policy provides business interruption coverage in the event that the coronavirus was in the insured premises. The restaurant “does not seek a determination of whether the Coronavirus is physically in the insured premises, amount of damages, or any other remedy besides the declaratory relief.” In support of its case, the restaurant alleges that the coronavirus pandemic can constitute physical loss because the virus “physically infects and stays on the surface of objects or material [ ] for up to twenty-eight days[.]”
There is precedent supporting the insured’s argument that physical loss can occur without structural damage or alteration to the insured premises. In Gregory Packing, Inc. v. Travelers Property Casualty Co. of America, a federal court in New Jersey found that covered property damage had occurred at a packaging facility due to the accidental release of liquid and gaseous ammonia. 2014 U.S. Dist. LEXIS, at *2 (D.N.J. Nov. 25, 2014). The court relied on precedent from the Third Circuit that “property can sustain physical damage without experiencing structural alteration.” Id. at *13. Subsequent decisions have echoed the New Jersey district court’s finding that property damage and physical loss need not be structural. See Mellin v. Northern Security Ins. Co., 167 N.E. 544 (N.H. 2015) (holding that odor from a neighboring property could fall under commercial property insurance policy’s definition of “physical loss” even if it “cannot be seen or touched” because it can render the insured property “temporarily or permanently unusable or uninhabitable”); Widder v. La. Citizens Prop. Ins. Corp., 82 So.3d 294 (La. App. 4 Cir. 8/10/11) (finding that gaseous fumes associated with drywall constituted covered physical loss for purposes of homeowners’ policies because “when a home has been rendered unusable or uninhabitable, physical damage is not necessary”).
Given the tremendous amounts at stake, we expect many such lawsuits to follow. While the issues presented in this case have applicability beyond that particular dispute, the analysis of any business interruption (or other insurance coverage) claim depends primarily on policy language. Ballard Spahr and its insurance attorneys are paying close attention to these developments and stand ready to assist with any of the myriad insurance issues presented by this pandemic.
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