Coronavirus Coverage Litigation: The 'Physical Loss or Damage' Battle Revs Up

Beginning in March and continuing on a daily basis, lawsuits have been filed in state and federal courts all over the United States seeking to resolve questions around the availability of insurance coverage for COVID-19-related business interruption losses. The overwhelming majority of these suits, which now number several hundred, have been filed by policyholders, but there are several cases commenced by insurers seeking a judicial declaration that their policies do not provide coverage. The policyholders in these cases operate in a variety of industries, but many of these suits have been brought by those in the food and beverage industry, with restaurant owners leading the charge. Additionally, more and more of these coverage suits are being brought as proposed class actions, and a number of efforts have been undertaken by plaintiffs counsel to centralize certain groups of cases in one or more coordinated multidistrict actions. Thus far, those consolidation efforts have been largely unsuccessful and no class action has been certified.

Early Court Rulings

The insurance industry uniformly opposes the notion that their standard commercial property policies are intended to cover losses associated with pandemics, and one of the threshold coverage issues they have raised is whether the COVID-19 virus and related governmental orders constitute or result in “physical loss or damage” to an insured’s property. While most of the COVID-19 insurance coverage cases are still in their infancy, some insurer-defendants are filing early motions to dismiss targeting this “physical loss or damage” issue, and trial court rulings are beginning to emerge. As is often the case, and as can be seen from these early rulings, insurance coverage is highly dependent on the factual circumstances of a particular loss, including the way in which it is pleaded, and on the precise policy language at issue.  Additionally, insurance coverage generally is a matter of state law and there can be significant variation in how courts in different states—and even different courts within the same state—address identical insurance issues.