By Frank Weiss
Companies across the state, and around the country, have suffered significant loss of income due to interruptions to their business caused by the spread of COVID-19 and the ensuing government-ordered closures. These companies have been disappointed to find their insurance claims for business interruption losses denied across the board.
While property insurance policies typically provide coverage for business interruption or losses resulting from orders issued by civil authorities, the policies require that there be direct physical loss or damage to property in order to trigger coverage. Insurers point to this language to justify their denial of coverage, arguing that the virus does not cause structural damage to property and, therefore, does not fall within the scope of the coverage.
As previously pointed out, Oregon law is quite favorable to policy holders on this issue, but no Oregon court has directly addressed coverage for COVID-19 related claims. Now, however, for the first time, a federal district court in Missouri has issued an opinion affirmatively holding that coverage may exist for COVID-19 business interruption claims. In STUDIO 417, et al. v. The Cincinnati Insurance Company, 2020 WL 4692385 (W.D. Mo. Aug. 12, 2020), the court denied the insurance company’s motion to dismiss a lawsuit brought by restaurants and salons that had been shut down as a consequence of closure orders issued by local civil authorities.
In STUDIO 417, the insurance company made the standard argument that its policies provide coverage “only for income losses tied to physical damage to property, not for economic loss caused by governmental or other efforts to protect the public from disease. . . .” However, the court disagreed, holding that the plaintiffs’ allegations that “COVID-19 is a highly contagious virus that is physically 'present … in viral fluid particles,'” which were likely present on their premises, was sufficient to state a claim for coverage. In so holding, the court rejected the notion that the property itself must be physically altered in order for coverage to apply.
The STUDIO 417 holding is in line with prior Oregon decisions addressing analogous situations. For example, an Oregon federal court recently held that business interruption coverage applied when smoke from a nearby wildfire made it necessary to cancel plays scheduled to be held at an outdoor theater. The reasoning was that the wildfire smoke caused injury or harm to the interior of the theater, which included the air within it. Oregon Shakespeare Festival Ass’n v. Great Am. Ins. Co., 2016 WL 3267247 (D. Or., 2016). In reaching this conclusion, the court rejected the notion that the physical structure of the building must necessarily be damaged in order for coverage to apply. The same rationale would obviously support the conclusion that the presence of the virus in the air or on surfaces within a business establishment making it unsafe for use, would likewise constitute sufficient physical loss or damage to trigger coverage.
While not binding in Oregon, the STUDIO 417 ruling is consistent with Oregon’s existing case law and provides further reason to believe that Oregon courts will find that coverage exists – at least for policy holders who can prove that the physical presence of the virus resulted in the interruption of their business. At a minimum, it is certainly encouraging to see a federal court rejecting the premise that COVID-19 related losses are categorically not covered.
To have your insurance policy properly reviewed, or for specific advice regarding your coronavirus-related insurance claims or concerns, please contact Frank Weiss or the Tonkon Torp attorney with whom you normally consult.