It was, and still is, without a doubt, the most significant coverage question ever faced by property-casualty insurers: Do they have an obligation to pay losses, for business interruption, on account of the Covid-19 pandemic?

In late February and into March, as Covid-19 lockdowns began, it became clear to coverage lawyers that this question was at hand -- and the answer was going to be monumental in significance.  The dollars at stake for Covid-19 coverage, some predicted, would make Hurricane Katrina look like loose change under the sofa cushions. 

A keyboard assault, by coverage lawyers, was now underway.  The result was a barrage of articles and law firm alerts, by advocates on both sides, advancing predictable positions on coverage for pandemic-related business losses.  Many who went to law school, because they weren’t good enough in math and chemistry to go to medical school, now turned into microbiologists, arguing whether the presence of Covid-19 scientifically qualified as “direct physical loss of or damage to” the covered property, or some similar policy requirement, to trigger coverage.  In making their points, the authors trotted out obscure cases addressing whether smoke, ammonia fumes, odors and other hard-to-see substances caused property damage. 

Then, some New Jersey legislators, seeing the writing on the wall, that coverage under property policies, for business interruption, was going to be a tough road, introduced a bill that caused insurers to seethe.  The proposed law would, under certain circumstances, mandate coverage for Covd-19 business interruption under property policies.  Several other states followed New Jersey’s lead and introduced similar bills that would provide coverage via legislative presto.  Now some coverage lawyers turned into Con Law professors.  Articles abound arguing whether this insurance-mandated legislation could pass Constitutional muster under the Contracts Clause.

Next up was the inevitable: policyholders filed declaratory judgment actions, seeking a determination that their property policies provided coverage for their Covid-19 business interruption losses.  According to the University of Pennsylvania Law School’s “Covid Litigation Tracker,” at least 1,400+ Covid-19 coverage actions have been filed (and likely more, as these filings, especially in state court, cannot all be tracked).

Now, with complaints and motions to dismiss in hand, courts had their say on the great question.  According to the Penn Law Tracker, about 100 known decisions have been handed down.  Insurers have won the lion’s share of them.  Courts have generally concluded that Covid-19 business interruption losses are not covered, under a property policy, as they were not caused by
“direct physical loss of or damage to” the covered property, or something along those lines.  In addition, the presence of virus exclusions has often precluded insurers’ obligations.           

Policyholders have maintained that the battle is far from over, and, for various reasons, their fortunes will turn in 2021.

But, despite the Covid-19 coverage question being the most important ever faced by P&C insurers, none of the approximately 100 decisions, providing the answer, or concluding that it was premature to do so, qualify as one of the ten most significant coverage decisions of 2020. 

The reason goes back to the selection process discussed in the introduction.  The most important consideration, for selecting a coverage case as one of the year’s ten most significant, is its potential ability to influence other courts nationally.  And none of the Covid-19 coverage decisions, at least so far, have done so.  Perhaps some will emerge at the appellate level.  But, for now, none of the Covid-19 decisions have become a go-to case for courts seeking guidance on the issue. This is likely because the decisions often look to state law for guidance.  In addition, with so many decisions coming all at once, with similar rationales, there has been no need for any one to take on a leading status.       

Even two examples, that policyholders pointed to as important wins, and that may influence other courts, have not come to pass. 

In August and September, three Missouri federal court decisions -- Studio 417, Inc. et al. v. The Cincinnati Insurance Co., K.C. Hopps, Ltd. v. The Cincinnati Ins. Co. and Blue Springs Dental Care, LLC v. Owners Insurance Company -- denied the defendant-insurers’ motions to dismiss.  Coming on the heels of a litany of insurer wins, policyholders touted the Missouri wins as evidence that the tide was turning.  But other courts have not looked to the Missouri-trio as a basis to find in favor of policyholders.  And many have specifically declined to follow them. 

In fact, in December, in Zwillo v. Lexington Insurance Co., even a Missouri federal court specifically declined to follow the Missouri-three, stating: “To the extent this Court’s ruling -- finding the language in the policy plainly and unambiguously does not cover the claims -- conflicts with Studio 417, K.C. Hopps, and Blue Springs Dental Care, this Court respectfully disagrees with those cases.”

The most-touted policyholder win came in October, when a North Carolina state court, in North State Deli v. The Cincinnati Insurance Company, granted the policyholder’s motion for summary judgment, thereby concluding that coverage was owed for Covid-19 .  In other words, it was not simply a case of a court denying an insurer’s motion to dismiss the policyholder’s complaint. 

In general, the court in North State Deli held that the “ordinary meaning of the phrase ‘direct physical loss’ includes the inability to utilize or possess something in the real, material, or bodily world. . . . “ This is precisely the loss caused by the Government Orders. Plaintiffs were expressly forbidden by government decree from accessing and putting their property to use for the income-generating purposes for which the property was insured. . . .  In ordinary terms, this loss is unambiguously a ‘direct physical loss,’ and the Policies afford coverage.”  Of note, the Cincinnati policy did not contain a virus exclusion, which the court pointed out.  The decision in North State Deli is on appeal.

This victory, like the Missouri trio, caused policyholders to proclaim that brighter skies lay ahead.  However, North State Deli has not materialized, as a case followed by other courts, to find coverage for Covid-19 business interruption losses.    

Thus, despite the Covid-19 coverage question being the most important ever faced by P&C insurers, none of the approximately 100 decisions, addressing the issue, meet the test to qualify as one of the ten most significant coverage decisions of 2020. 

But, having said that, Covid-19 was unquestionably the biggest insurance coverage story of 2020 -- and no doubt will be in 2021.  There are umpteen coverage cases for which rulings will come this year and appeals courts will surely enter the scene.     

That Covid-19 became a monumental insurance coverage story should come as no surprise.  History has shown that, when wide-spread social problems arise, and money is one part of the solution, a place will be set at the table for the insurance industry.  The question will then arise whether insurers are required to pull up a chair, and if so, how many it should occupy. 

This is particularly so when the situation is unique and guidance on the appropriate role of insurers is needed.  Examples include asbestos, the governments’ focus on environmental clean-up, the World Trade Center number of occurrences question and Hurricane Katrina’s unprecedented destruction.         

The pursuit of coverage, for Covid-19 business interruption losses, followed this path.  Almost immediately after it became clear that the virus was going to be not just a massive health crisis, but an economic one, property insurance policies were scrutinized, issues identified, claims made and litigation filed by dissatisfied parties.  The result, as in the other situations to follow this formula – mixed.  That is not unusual given the number of claims, policy variation and involved jurisdictions.