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The Massachusetts Judicial Supreme Court on Thursday joined federal appeals courts in ruling against policyholders in a COVID-19 business interruption case, becoming the first state high court to decide the issue.
The unanimous ruling was in a case filed by three restaurants in Boston and Cambridge under common ownership against Strathmore Insurance Co., a unit of Greater New York Mutual Insurance Co., according to the ruling in Verveine Corp. et. al v. Strathmore Insurance Co. et al.
The ruling affirms a trial court decision. The Massachusetts Supreme Court considered the case without first waiting for a state appeals court ruling on the issue.
As with its federal appeal counterparts, the Massachusetts high court held that plaintiffs were not entitled to coverage because they had not established the virus had caused direct physical loss, as required by its coverage.
“We agree that the plaintiffs’ losses were not ‘direct physical loss of or damage to’ their property within the meaning of the insurance policies,” the decision said.
“We conclude that no reasonable interpretation of direct physical loss of or damage to property supports the plaintiffs’ claim.”
Direct physical loss “requires some ‘distinct demonstrable physical alternation of the property,’” it said in citing an earlier case. “Every appellate court that has been asked to review COVID-19 insurance claims has agreed with this definition for this language or its equivalent,” it said.
“Even accepting the plaintiffs’ premise that the suspension of their business was caused by the ‘presence’ of the virus on surfaces and in the air at the restaurants (as opposed to the danger that the virus would be introduced to the restaurants for person to person if indoor dining were allowed), mere ‘presence’ does not amount to loss or damage to the property,” the ruling said.
Attorneys in the case did not respond to requests for comment.
Insurer Insurance Australia Group Ltd. and two policyholders have filed separate applications with the High Court of Australia to appeal parts of the recent ruling in the second of two COVID-19 business interruption insurance test cases, Asia Insurance Review reported. While the latest judgment upheld insurers’ arguments, finding insurers not liable to indemnify the policyholders in most cases, IAG, with its recent appeal, is looking to clarify whether JobKeeper payments should be considered while calculating BI insurance payouts for policyholders.