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Policyholders fight on for COVID cover

judge's gavel

Policyholder attorneys predict a more balanced picture of victories will eventually emerge in COVID-19-related business interruption litigation. 

To date, a large percentage of cases filed by businesses seeking coverage for pandemic-related closures have been dismissed, with many of these rulings citing a lack of evidence establishing that the virus caused “direct physical damage.”

Policyholder attorneys say many of the rulings issued so far reflect early cases that were often filed by unsophisticated attorneys who mistakenly focused on the issue of government-ordered shutdowns as the reason why coverage should be granted, an argument courts generally considered unpersuasive.

They say better success is likely with more recent lawsuits that focus on scientific evidence to persuade the courts that COVID-19 causes physical damage.

They also hold out hope of more success with upcoming rulings by state appellate courts, which they say tend to be more favorably inclined toward policyholders.

The Ohio Supreme Court is expected to be the first state supreme court to rule on the issue, in Neuro-Communication Services Inc., etc. v. The Cincinnati Insurance Co. An intermediate California appeals court ruled against the policyholder in November.

Insurer attorney Lee Siegel, a member of Hurwitz & Fine PC in Melville, New York, said, “The carrier side is, we believe that the decisions that have come down to date are correctly decided, and we are confident and hopeful that the state supreme courts, as they look at it, will continue to determine there’s no coverage where there’s no physical loss.” 

As of late November, all eight federal appellate court rulings on the issue have been in insurers’ favor: three by the 6th U.S. Circuit Court of Appeals in Cincinnati; three by the 9th Circuit in San Francisco; one by the 8th Circuit in St. Louis; and one by the 11th Circuit in Atlanta, with the remaining federal appeals courts yet to rule.

An additional 291 cases are pending, according to statistics gathered by the University of Pennsylvania Carey Law School.

Both federal and state courts have ruled overwhelmingly in insurers’ favor, although policyholders’ winning percentages are better in state courts.

There is general agreement that the litigation’s ultimate outcome is likely to be a patchwork of different rulings, although less lopsidedly in insurers’ favor than currently. 

“Each case is dependent upon the facts of that case, and I don’t know we’ve seen the best of those cases yet,” said Marshall Gilinsky, a shareholder with Anderson Kill P.C. in New York.

“You’re going to see some of the more sophisticated, fact-specific cases possibly gain some traction in the coming months and even years,” said K. James Sullivan, a policyholder attorney with Calfee, Halter & Griswold LLP in Cleveland.

In early pro-insurer rulings, the policyholders did not allege the virus’ existence on their premises, nor “that there was any kind of physical impact or that the virus physically altered the premises,” said Paul Walker-Bright, counsel with Neal, Gerber & Eisenberg LLP in Chicago.

Instead, those cases “were based on the theory the government orders alone and by themselves were sufficient to trigger coverage” and did not allege the parties had the virus out of fear of triggering virus exclusions, Mr. Walker-Bright said.

Policyholder attorneys say indications in rulings already issued provide some confirmation that focusing on the physical damage
COVID-19 allegedly causes may be a more effective approach. (See related story).

Complaints that assert the virus’ presence on the premises and contend that it caused the loss of functional use of the property will be successful because “they fit squarely within a 60-year line of cases in the country that existed way before COVID” that says toxic, hazardous or noxious substances in the air or on the premises create property damage, said Scott D. Greenspan, senior counsel with Pillsbury Winthrop Shaw Pittman LLP in New York.

Policyholder attorneys are also optimistic a greater percentage of cases before state supreme courts will go policyholders’ way. They are the courts “that set the law of their state, and federal courts are bound to follow it,” Mr. Gilinsky said.

Mr. Walker-Bright said, “We have yet to see any state appellate court decisions on the issues, and we have yet to see any decisions by courts that have been squarely confronted with allegations of coronavirus on the premises, so that may be something to watch out for as these cases go forward.”

Cary B. Lerman, a policyholder attorney with Munger, Tolles & Olson LLP in Los Angeles, said he remains optimistic about the 9th Circuit, despite its rulings against policyholders in three cases so far.

“I wouldn’t be surprised if we got a panel on the 9th Circuit that went the other way,” which would lead to an en banc consideration of the issue by the entire court, he said.

Mr. Walker-Bright said many past initial lower court rulings on the issue of coverage for sudden and accidental pollution initially were also unfavorable to policyholders, but the trend changed over time.






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  • Direct physical loss key

    Some observers believe there is a roadmap to policyholders’ achieving greater success in COVID-19 business interruption litigation, despite their relative lack of success so far, if plaintiffs focus on the issue of whether the virus causes direct physical loss or damage from a scientific perspective.