News & Insights

Appellate Courts To Hear Business Owners’ Claims For Insurance Coverage For Business Interruption

This week has seen a few notable updates in the ongoing dispute regarding insurance coverage for business interruption resulting from COVID-19-related business closures, as federal and state appellate courts finally have had the opportunity to weigh in on these arguments.

On September 29, 2020 in Iowa, United States District Judge Charles R. Wolle granted with prejudice an insurer’s Motion to Dismiss an oral surgery clinic’s declaratory judgment action seeking coverage for business interruption. Oral Surgeons, P.C. v. Cincinnati Ins. Co., 491 F. Supp. 3d 455 (S.D. Iowa 2020). The plaintiff claimed its losses resulted from government orders restricting performance of “non-emergency dental procedures.” The insurer emphasized that purely economic loss is not covered; rather, the policy requires physical loss to trigger coverage.

Judge Wolle relied on the recent cases holding “that virus-related closures of business do not amount to direct loss to property” and conclusorily stated that cases holding otherwise are distinguishable and “not as well analyzed.” Judge Wolle not only dismissed the case with prejudice but also did so at the clinic’s expense.

The plaintiff filed its appeal to the Eighth Circuit Court of Appeals on October 21, 2020. An Eighth Circuit panel held a hearing on April 14, 2021. It argued the policy language requiring “physical loss” was ambiguous and, thus, should be construed in favor of coverage. The insurer highlighted the growing number of courts that have rejected similar arguments based on the same policy language.

In Ohio, United States District Judge Benita Y. Pearson signed an Order of Certification to the Supreme Court of Ohio on January 19, 2021. Neuro-Commc’n Servs., Inc. v. Cincinnati Ins. Co., No. 4:20-CV-1275, 2021 WL 274318 (N.D. Ohio Jan. 19, 2021). Judge Pearson certified a novel question under Ohio law:

Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?

The plaintiff claims its “all risk” policy covers accidental physical loss or damage and loss resulting from business interruption resulting from a “civil authority order prohibiting access to [its] premises.” Notably, the policy does not expressly exclude loss resulting from viruses or pandemics. Judge Pearson highlighted the “dozens, if not hundreds” of cases seeking similar coverage, the lack of precedent, and the potential for different interpretations across state courts that will frustrate uniform interpretation of Ohio law.

On April 14, 2021, the Supreme Court of Ohio announced it would answer the certified question. Petitioners are required to file merit briefs within forty days.

Over the next few months, lower courts, at least in Iowa and Ohio, finally should receive much-needed precedential guidance on the issue of insurance coverage for losses resulting from COVID-19 related business interruption.