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A federal court in Texas dealt another blow to commercial policyholders seeking coverage for coronavirus-related business interruption losses on Thursday ruling that pandemic-related lockdowns did not constitute a direct physical loss for a group of barbershops.
While policyholders have scored a couple of victories in the few suits that have been ruled on so far, insurers have won more of the rulings. Hundreds of suits filed by policyholders in state and federal courts are still pending.
In the case Diesel Barbershop LLC et al v. State Farm Lloyds, U.S. District Court Judge David A. Ezra in San Antonio granted the insurer’s motion to dismiss a complaint filed by six local barbershops who sought coverage for income lost during government-ordered lockdowns intended to stem the spread of COVID-19.
The State Farm Lloyds policies covered “accidental direct physical loss” and included a virus exclusion, court papers say.
The barbershops claimed that coverage for lost income did not require “a tangible and complete physical loss” but could include a partial loss, such as loss of use due to restrictive orders.
The judge ruled that while he sympathizes with the policyholders’ situation and that some courts have granted coverage for nontangible losses in cases involving contamination or pollution, the plain language of the policies bar coverage for the forced closures related to the pandemic.
“Here, the Policies are explicit that there has to be an accidental, direct physical loss to the property in question,” the ruling states.
In addition, even if there had been direct physical damage, the virus exclusion in the policies would bar coverage, the court ruled.
“While there is no doubt that the COVID-19 crisis severely affected Plaintiffs’ businesses, State Farm cannot be held liable to pay business interruption insurance on these claims as there was no direct physical loss, and even if there were direct physical loss, the Virus Exclusion applies to bar Plaintiffs’ claims,” the ruling said.
Courts in Washington, Michigan and New York recently have also ruled in favor of insurers in similar cases.
On Wednesday, though, a federal judge in Missouri rejected an insurer’s motion to dismiss a case brought by a group of hair salons seeking coronavirus-related coverage.
Also on Wednesday, the U.S. Judicial Panel on Multidistrict Litigation refused to consolidate COVID-19-related business interruption litigation filed by businesses against all insurers, but said it is considering centralizing litigation filed against individual insurers.
More insurance and risk management news on the coronavirus crisis here.
South African insurers have rejected COVID-19 pandemic-related business interruption claims of at least 2,000 companies belonging to the entertainment and hospitality industry, Sowetan reports. Insurers, including Santam Ltd., said the losses were not due to the pandemic but linked to the government-imposed lockdown.