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Direct physical loss key

policy language

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.

Scott Greenspan, senior counsel with Pillsbury Winthrop Shaw Pittman LLP in New York, pointed to a statement in the July 2 ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in Oral Surgeons P.C. v. the Cincinnati Insurance Co., which said there must be some physicality to the loss or damage of property, such as  physical contamination, set forth for coverage, but “Oral Surgeons alleged nothing to meet that requirement.“

The Oct. 1 ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Mudpie Inc. v. Travelers Casualty Insurance Co. of America repeated that sentence.

The 9th Circuit’s ruling the same day in Selane Products Inc. v. Continental Casualty Co. cites the Mudpie ruling, stating the company must allege “some direct physical loss of or damage to” its property.

The complaints that cite scientific evidence as to the virus’ presence on the property “will be just fine,” Mr. Greenspan said. 

K. James Sullivan, a policyholder attorney with Calfee, Halter & Griswold LLP in Cleveland, said, “It remains to be seen if those kinds of science-based, sophisticated cases, with policyholder lawyers really dedicated” to this area of law “are starting to see traction.” 

It may be “too little or too late because snowballs roll downhill, as some argue … but it’s not impossible,” Mr. Sullivan said.

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