In 2021, extensive litigation will continue across the country regarding whether insurance coverage exists for losses that businesses have experienced as a result of pandemic-related closures.
Approximately 1,500 coverage lawsuits are pending, with more being filed each day. Thus far, the vast majority of courts—particularly federal trial courts—have dismissed pandemic-related business interruption coverage lawsuits. The results are more mixed in state courts, where a number of judges have denied insurers' motions to dismiss. However, the battle is far from over. In federal courts, over 50 appeals of dismissals are being pursued. And, in those state courts that have denied insurers' motions to dismiss, policyholders still have a long way to go before establishing coverage for their losses caused by pandemic-related closures.
The coverage disputes typically arise in the context of whether: (1) the pandemic caused "physical loss" or "physical damage" to the policyholder's property; (2) under the civil authority coverage part, access to the policyholder's property was prohibited due to a physical loss or damage at adjacent properties; (3) the virus prevents ingress or egress to property even absent a government closure order; and (4) a virus exclusion that may be included in a policy applies. Insurers have asserted that pandemic-related closures do not involve physical loss or damage to property. They argue that the policies were intended to cover business interruption losses when, for example, a business temporarily closes as a result of a fire or tornado. Some policyholders have countered that the virus caused damage to the surfaces on which it landed and the surrounding air, which constitutes direct physical loss or damage. Those policyholders further argue that, as the words "physical loss" and "physical damage" often are not defined in the policies, terms may be ambiguous and courts should error on the side of the policyholders, finding coverage. Policies that are subject to virus exclusions pose particularly challenging issues for policyholders because those exclusions often preclude coverage for loss or damage caused, directly or indirectly, by any virus that may cause bodily injury
Policyholders should read carefully their policy terms and consider the applicable state laws. Many of the property policies that include business interruption coverage parts require that coverage litigation be pursued within a relatively short period after a loss has been incurred. In some instances, that period may be as short as one year. And, in some states, that period starts when the loss begins. Accordingly. That one-year period for pursing coverage litigation may soon be coming to a close. However, in many states, the period for pursuing pandemic-related coverage losses has been extended. In sum, it is important to analyze the policy terms and applicable state law to avoid an unintentional loss of coverage.
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