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In a sweeping consolidated ruling issued Friday, the 3rd U.S. Circuit Court of Appeals in Philadelphia ruled in favor of several insurers and held that dozens of companies were not entitled to COVID-19-related business interruption losses.
It joined 10 other federal appeals courts in ruling against policyholders on the issue, with only the U.S. Court of Appeals for the District of Columbia Circuit not having issued a decision.
Plaintiffs in the case, Rhonda H. Wilson; The Law Offices of Rhonda Hill Wilson P.C. v. USI Insurance Service LLC; Hartford Casualty Insurance Co., are businesses in Delaware, Maryland, New Jersey, New York and Pennsylvania in the food service, medical, health and wellness, art, music and legal sectors.
The 3rd Circuit affirmed lower district courts in ruling policyholders were not entitled to business interruption loss coverage because there was no physical damage.
Its language echoed that of earlier federal appeals court decisions.
“To establish coverage under the business income and extra expense provisions, the businesses must show that their operations were suspended because of ‘direct physical loss of or damage to’ the properties,” it said.
“The businesses argue that the loss of their ability to use their properties for their intended business purposes constitutes ‘physical loss of’ the properties. We disagree.”
The court said the plaintiffs’ argument was “completely divorced from the physical condition of the premises” and that they lost use of them because of governmental orders, with the properties’ structures remaining “intact and functional.”
Plaintiffs have had relatively little success in state supreme courts as well. State supreme courts in Delaware, Iowa, Maryland, Massachusetts, Ohio, Oklahoma, South Carolina, Washington and Wisconsin have also ruled in insurers’ favor in comparable cases, with only Vermont’s high court ruling in policyholders’ favor to date.