There has already been a large amount of discussion around how first party property insurance may apply to claims by businesses based on COVID-19, even before early cases have made their way through the court system. Although potential coverage will depend on the particular policy, fact situation, and jurisdiction, there are some general concepts to consider when analyzing these claims. It is important to note that many policies will have a virus exclusion, but there are other issues to consider.
First, can the insured show that there was a virus present at a covered property? In many instances, an insured may not know whether there was actual evidence of a virus at the insured’s business. Typically, it is the insured’s burden to show coverage, so it should be the responsibility of the insured to show the presence of the virus to even get started on coverage questions for damage to property coverage. Even if there is a virus present at the insured building, does the presence of the virus constitute direct physical loss or damage? In some states, the presence of odor or fumes may satisfy the direct physical loss requirement. If so, the question would be whether the court’s decision allowing such coverage is based on a conclusion that the presence of the fumes or odor physically changed some aspect of the covered property, and whether this should apply to the presence of a virus.
A more typical case may involve a claim for lost income or business interruption given the various limitations or closure orders across the United States. If there is no evidence of a virus present at the insured’s business location, a virus at other locations which cause the government to prohibit access to the insured’s business may allow for coverage under the civil authority provision of many policies. Again, however, the virus must still cause direct physical loss or damage to someone else’s property. So, it seems that the initial issue must still be overcome by the insured. Another argument to be made by the insurer is whether access to the insured’s business is actually “prohibited.” If some access is allowed, like only take-out food, there is a question as to whether this would apply as a “prohibition.” In addressing coverage based on other natural disasters, there is support nationally for a position that only completely barring any type of access to the facility should qualify.
Where an insured overcomes the issues and successfully argues that a coverage grant applies, exclusions may also come in to play. As noted above, many policies exclude coverage for loss caused by a virus. It seems that this exclusion should typically apply, but there are issues here as well. First, if the jurisdiction applies efficient proximate cause, and the policy does not contract around this rule, the insurer may be required to show that the virus is the efficient proximate cause. Some jurisdictions also negate the application of exclusions where there is an intervening covered cause. Again, the specific policy language and jurisdiction will influence the strength of these arguments by the insured. Other policy exclusions may also apply, like the loss of use/loss of market exclusion, but would be subject to the same concerns regarding burden of proof and efficient proximate and intervening causes.
Finally, there is the overhang of legislation on the state and/or national level that may apply to coverage for the COVID-19 losses. Depending on the outcome of such legislation, litigation and additional arguments may arise. At this stage of the pandemic and its resulting litigation, much remains to be seen as to the lasting impact on property insurers.