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Lloyd’s syndicate slams ‘direct physical loss’ claim in COVID suit

Posted On: May. 6, 2020 10:42 AM CST


A Lloyd’s of London syndicate fired back at a Tampa, Florida, sports bar that sued the insurer last month for business interruption coverage, arguing the bar is not covered for coronavirus-related losses.

In a motion to dismiss filed in federal court in Tampa on Monday, syndicate DTW 1991, which is managed by Coverys Managing Agency Ltd. in London, contends that coverage under its policy is not triggered because the bar did not suffer a physical loss or damage.

In the case, Prime Time Sports Grill Inc. d/b/a Prime Time Sports Bar v. DTW 1991 Underwriting Ltd., the bar had argued that government-ordered lockdowns triggered coverage under its policy with the syndicate, which does not include a virus exclusion.

The suit is one of dozens of business interruption cases filed against insurers over the past two months. Many of the suits argue that the presence of COVID-19 constitutes physical damage, that they have been ordered to close their businesses by government authorities, and, therefore, coverage is triggered under the civil authority clauses of their policies.

In its motion to dismiss, DTW argues that its policy only offers coverage for lost income if it is caused by “direct physical loss of or damage to property.”

Insurers cannot cover businesses for “every economic ‘slowdown’ attributable to an outside cause,” court papers say. For example, bad weather could cause a slowdown in business, DTW argues.

“And for a themed business such as Prime Time Sports Grill, an idiosyncrasy such as a particular sports team winning or losing a playoff game could trigger a loss. Such coverage would be untenable and, more important, that is not the coverage Prime Time purchased,” court papers say.

The bar has lost income as an “economic side-effect” of Florida’s COVID-19 “Safer at Home” orders, the insurer argues.

In addition, the bar has not been rendered uninhabitable by the virus, because it is still offering carry-out business, so past precedents that have found the presence of airborne particles such as asbestos trigger coverage do not apply for coronavirus cases, the insurer argues.

And other facilities that have confirmed the presence of the coronavirus, such as hospitals and medical clinics, have remained open and employees continue to work, the motion states.

“The virus requires that appropriate precautions be taken, but it does not cause direct physical damage to the property itself, and it does not destroy the property’s physical utility as a structure and render it uninhabitable,” court papers say.

Insurers and insurance groups have stated in position papers and on results conference calls over the past several weeks that most business interruption policies will not cover coronavirus-related losses because most policies contain virus exclusions and where they don’t, physical loss or damage has not occurred, therefore, coverage is not triggered. Travelers Cos. Inc. last month countersued one of its policyholders arguing that it is not covered for COVID-19 claims.  

More insurance and risk management news on the coronavirus crisis here.