One of the top-of-mind issues for many companies in recent months has been whether their business interruption insurance policies will pick up part of the tab for COVID-19 losses. We wrote a few months ago that companies seeking to recover under those policies were likely to face an uphill climb. A Faegre Drinker memo reviews the first substantive judicial decision on COVID-19 coverage issues, and the result is consistent with that prediction:
Generally, insurers in such suits have taken the position that the virus has not caused physical damage to the insured’s property and therefore there has been no trigger for coverage under the terms of the policies at issue. Insurers have also argued that, under the terms of the policies, there can be no coverage for business interruption because losses caused by viruses are specifically excluded.
On July 2, 2020, a judge in Ingham County, Michigan issued what appears to be the first substantive decision in a COVID-19 business interruption coverage case. In Gavrilides Management Company, et al. v. Michigan Ins. Co., the insured argued that the virus exclusion did not apply because the loss of access was caused by the government orders, not by the virus. In addition, the insured argued that the loss of use of the property caused by the governmental orders constituted “direct physical loss” within the meaning of the policy. Applying Michigan law, the court rejected both arguments.
Ruling from the bench on a motion to dismiss, the judge held that “direct physical loss or damage” requires more than mere loss of use or access. The judge then held that the virus exclusion unambiguously excluded coverage caused by the impact of COVID-19.
Since the insureds’ arguments are similar to the arguments made in other cases, the memo says that case will undoubtedly be cited by insurers in other business interruption coverage cases pending throughout the country.
-John Jenkins, TheCorporateCounsel.net July 7, 2020
