Federal courts across the country have weighed in on whether insurance covers business interruption losses related to the COVID-19 pandemic and related government orders. Recent decisions have benefited both insurers and insureds and hinge on whether these damages can be classified as physical loss or damage to property.

Some notable wins for insurers include:

All of these cases, decided by dispositive motions, held that COVID-19 business interruption losses do not trigger coverage under existing commercial property insurance policies because:

These decisions, however, should not be read as foreclosing the possibility of recovery for COVID-19-related business interruption damages. For example, two noteworthy insured wins in federal district courts highlight that in some instances these types of claims survive dispositive motions:

In both cases, the courts allowed the insured's claim to move past the pleading stage because they adequately alleged that COVID-19 causes a physical loss. In K.C. Hopps, Ltd., the court even states plainly that the 8th Circuit's decision in Oral Surgeons did not stand for the proposition that COVID-19 could never cause physical loss or physical damage (K.C. Hopps, , at *6). Instead, Oral Surgeons only answered the narrow question of whether COVID-19-related emergency orders constituted direct physical loss under the policy (the 8th Circuit determined it did not).

Counsel for policyholders and insurers should continue to monitor cases involving COVID-19 and business interruption insurance claims. The most recent federal decisions suggest that to survive dismissal at the dispositive motion stage, policyholders with cases pending in federal courts in the 6th, 8th, and 9th Circuits should allege, at minimum, that the COVID-19 virus physically contaminated their property and resulted in either:

This argument will be harder to make if the policy at issue includes a virus exclusion (see, for example, Mudpie (in which the policyholder argued that because it was not alleging that COVID-19 was present on its premises, the policy's virus exclusion did not apply (Compl. at ¶ 5)). Additionally, some federal courts, including the 11th Circuit, have come to the broader conclusion that neither COVID-19-related emergency orders nor COVID-19 particles in the air cause physical damage (see Gilreath Fam. & Cosm. Dentistry, Inc. v. Cincinnati Ins. Co., (11th Cir. Aug. 31, 2021)).

Policyholders should also remember that:

No state supreme court has issued a decision on the specific issue of whether COVID-19-related losses cause the type of physical loss or damage that triggers coverage under commercial property insurance policies. However, cases that may provide clarity are pending in several state supreme courts, including California and Ohio.

For a chart discussing key decisions in insurance coverage cases to recover COVID-19-related business interruption losses, including discussions of the federal opinions cited in this Update, see Practice Note, Key COVID-19 Insurance Coverage Cases Tracker (US): 2022.

For information on filing a business interruption claim, see Filing a Business Interruption Claim Checklist.