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Insurance Coverage and Bad Faith

Courts Across the Country Say Physical Damages are Required to Trigger Business Interruption Claims

Courts Across the Country Say Physical Damages are Required to Trigger Business Interruption Claims

Two years ago there was much uncertainty regarding how the COVID-19 pandemic would play out, and we all undoubtedly questioned when the world might return to some sense of normalcy. Likewise, in the insurance industry at that time, there was serious debate as to whether COVID-19 business losses would be covered by insurance and, if so, how that would impact the industry. For example, a March 30, 2020 headline from the Wall Street Journal proclaimed that “Pressure Mounts on Insurance Companies to Pay Out for Coronavirus.” Moreover, lawmakers in some states introduced bills that would have required insurers to pay COVID-19 claims without regard to policy language and exclusions.

Of course, much has changed in the last two years. The proliferation of vaccines and new, life-saving treatments has allowed the world to emerge from the pandemic. In addition, courts are now overwhelmingly finding that COVID-19 business interruption claims are not covered, reasoning that “direct physical loss” means something more than economic loss.

While the Florida Supreme Court has yet to rule on this issue, decisions from other federal appellate courts and state high courts are persuasive authority in support of a ruling that COVID-19 business interruption losses are not covered in Florida.

Federal Courts

Put simply, there is now a staggering amount of case law throughout the country finding in favor of insurers on this issue. Coincidentally, a non-COVID case—that was decided during the pandemic—from the Eleventh Circuit Court of Appeals set the stage for later federal court rulings that found no business interruption coverage as a result of COVID-19 shutdowns. In Mama Jo’s Inc. v. Sparta Insurance Company, decided on August 18, 2020, an insured restaurant sought coverage for property damage and business income losses purportedly due to nearby roadway construction that caused dust and debris to come into the restaurant. The Eleventh Circuit found that “an item or structure that merely needs to be cleaned has not suffered a ‘loss’ which is both ‘direct’ and ‘physical.’”

The Eleventh Circuit must have known that its analysis in Mama Jo’s would be seen and applied to future COVID-19 opinions, and that has come to be the case. To date, the Mama Jo’s opinion has been cited in 118 cases, including federal district courts in twenty-two states.

The Eleventh Circuit itself relied on Mama Jo’s when it issued a May 5, 2022 opinion, finding that there was no business interruption coverage for loss of use due to COVID-19 and closure orders. Similar decisions have now been reached by the 1st, 2nd, 4th, 5th, 6th, 7th, 8th, and 10th Circuits.

State Courts

The first two state Supreme Courts to rule on COVID-19 business interruption coverage were Massachusetts and Iowa. Both of those courts found that loss of use did not constitute “direct physical loss of or damage to property,” which requires some distinct, demonstrable, physical alteration of the property.

Wisconsin joined them on June 1, 2022, finding in a unanimous opinion that that there was no insurance coverage for restaurants where “the dining room was still there, unharmed and it was not physically lost or damaged.”

This issue is pending in other state Supreme Courts across the country—for example, the South Carolina Supreme Court heard oral arguments on June 8, 2022—and will eventually make its way to Florida’s Supreme Court. While other state and federal opinion are not binding on Florida courts, the opinions are persuasive in light of the clear majority rule being established.

Florida’s Third District Court of Appeal recently ruled that COVID-19 shutdowns are not covered business interruption losses. Other District Courts in Florida are expected to rule on this issue and it would be quite the upset if any of them reached a different conclusion.

The Outlier

After being mostly shut out in appellate cases across the country, policyholders scored a win in a Louisiana appellate court on June 15, 2022. In Cajun Conti LLC v. Certain Underwriters at Lloyd’s London, a panel on the Louisiana Fourth Circuit Court of Appeal found business income policy language to be ambiguous. In a 3-2 decision, the court reasoned that the insured restaurant was “unable to fully utilize the insured property due to the viral particles inside the property.” While policyholders will undoubtedly praise this victory, it is too early to tell whether this decision will cause any momentum to swing in favor of insureds.

Conclusion and Takeaways for Florida Claims

As we await more appellate decisions from Florida’s state courts—and what could be the final death knell for COVID-19 business interruption claims in Florida—let us consider the majority-rule takeaways from COVID-19 coverage litigation over the past two years:

  • Business interruption coverage requires tangible, physical damage to property;
  • Direct physical loss means something more than economic loss;
  • Courts will interpret terms according to their plain meaning when they are clear and unambiguous; and
  • Moving forward, government-mandated shutdowns without any threat of physical damage are not covered losses.

This is not to say that business interruption coverage is illusory, and that such coverage will never apply. The entire line of case law discussed above would not apply to losses commonly seen in Florida, such as those arising from hurricanes, tornadoes, hail, and other severe weather events. But, there must be some actual, physical damage to a property before business interruption coverage is triggered for such claims.  

Reprinted with permission from the July 5, 2022 edition of Daily Business Review © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or