COVID-19 Business Interruption Litigation Roundup

Photo by Jackie Boylhart on Unsplash

According to the COVID Coverage Litigation Tracker from Insurance Law Analytics, policyholders have filed some 1000 lawsuits against their insurers for business interruption losses.

As reflected in the attached table, 6 courts have now issued substantive rulings on claims for business interruption coverage. All but one has ended in dismissal. While these decisions represent less than 1% of all pending cases, here is what we know:

Virus Exclusions Holding — 4 complaints involved policies subject to a virus exclusion. None of those policyholders found a way around it. There are complaints out there alleging the virus exclusions should be disregarded as a matter of public policy, but those lawsuits have yet to face a ruling.

Lockdown Orders Alone Not Enough — 5 of the complaints pointed to a lockdown order as the cause of “physical loss or damage” to the policyholder’s property. Each of those lawsuits has been dismissed. Without an allegation of some physical change in the property, “loss of use” resulting from a lockdown order is turning out to be too little to survive a motion to dismiss.

Allegation of Attachment to Property Enough for Now — Only one of the 6 complaints allege COVID-19 physically attached to the property causing it to be unusable and unsafe — and that complaint withstood the insurance company’s motion to dismiss. Now the policyholder will have to come up with evidence to back up that allegation to keep the case alive.

Insurers have filed motions to dismiss in more than 200 cases. It may be that the “easy” ones have been coming up for disposition first. Indeed, 4 of the 5 dismissals demonstrate how difficult it can be for a policyholder’s lawyer to draft allegations of property damage without running straight into the virus exclusion.

According to the COVID Coverage Litigation Tracker, 17% of pending COVID-19 business interruption lawsuits have been filed against Hartford Insurance and 10% against Cincinnati Insurance. Those proportions are notable when considering their respective national market shares for Commercial Multi-Peril: 4.6% for Hartford and 2.9% for Cincinnati. Hartford and Cincinnati are also 2 of the insurers the federal Multidistrict Litigation (MDL) panel seems inclined to refer for centralization. A lawsuit against Cincinnati is the only one so far surviving the insurance company’s motion to dismiss. Once we begin to see rulings with respect to Hartford and Cincinnati’s insurance policies, we should have a better understanding of the overall direction of COVID-19 business interruption litigation.

We should also keep in mind we are starting to see results from the very first tests of business interruption claims. Complaints that have been dismissed may be amended or proceed to appellate review. Complaints that survive go onto the discovery phase where the allegations of property damage resulting from the virus will need to be supported by real facts not just words put on paper by a lawyer.

There remains a long road ahead.

Indexes of publications from the Centers for Better Insurance are available here:

Center for Pandemic Risk

Center for Terrorism Risk

Founder and Managing Member of Centers for Better Insurance, LLC