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Winning Covid-19 insurance Claims

Has your business suffered losses due to the closure of job sites, buildings, or your State’s ‘Stay at Home’ order? Most have. Businesses all over America are having the exact same experience right now. Are any of those losses covered by your insurance policy? It likely depends on how your State will define “direct physical loss or damage.” 

“Direct physical loss” is basically the first thing you need to show your insurer before you can access coverage for all the events listed in your policy. Courts across the country have ruled that “pure economic loss” is not “direct physical loss.” Beyond that, courts are not as consistent: does there need to be physical damage to business property (a hurricane destroyed your warehouse), or do you still have coverage if your property is unusable or too dangerous to operate even if it is not damaged (bacteria infests your restaurant after a leak but doesn’t cause the roof to collapse)? And no court anywhere in the country – until now – has been asked to decide if a fast-spreading virus leading to enormous business shutdowns is a covered event. Numerous lawsuits have been filed across the country seeking to establish coverage for the losses caused by the coronavirus, and government lockdowns intend to limit community spread of Covid-19.  

The Pennsylvania Supreme Court Hints How Coronavirus Might Be A “Direct Physical Loss”   

During the past 50 years, courts have started recognizing that your real estate or inventory does not need to be physically damaged in order for you to suffer a “direct physical loss or damage.” For example, if chemicals leaked into your building’s foundation and created so many fumes over time that the building could not be safely occupied, there was a “direct physical loss” even though the building was still standing there undamaged. But courts still required insureds to prove that the substance infesting or polluting was actually inside your building, as well as prove that the building was uninhabitable or too dangerous to occupy.

Things may change in the coronavirus pandemic if courts follow the reasoning in the Friends of Devito v. Wolf case from the Pennsylvania Supreme Court issued earlier this month. Strangely enough, the plaintiffs in DeVito were a group of business owners arguing that the coronavirus pandemic was not a “catastrophe which results in substantial damage to property”: their argument was that the governor had no authority to declare a state of emergency, at least not in the counties where their businesses were operating. The court rejected their arguments, but for reasons that may help businesses like yours pursue claims for coronavirus coverage in court. The court held that businesses were within the “disaster area” despite the bulk of coronavirus’ impact occurring elsewhere. Even the counties where there had not been significant coronavirus infections were part of the disaster area: 

• Petitioners’ argument ignores the nature of this virus and how it is transmitted. The virus spreads primarily through person-to-person contact, has an incubation period of up to fourteen days, one in four carriers of the virus are asymptomatic, and the virus can live on surfaces for up to four days. Thus, any location (including Petitioners’ businesses) where two or more people can congregate is within the disaster area.[1] [emphasis added]

Essentially, the court is saying that any place where more than one person “can” be present – even when there is no proven presence of coronavirus in that specific place – is part of the coronavirus disaster area. If courts apply this same reasoning to coronavirus-related insurance lawsuits, the insured will not need to prove that coronavirus spores were actually inside its business: the insured will be able to show a “direct physical loss” because the physical premises must be closed to avoid two or more people congregating.  

What Can You Do To Prepare An Insurance Claim For Losses During The Coronavirus Outbreak?

The first thing you should do if your business is suffering because of coronavirus is to put your agent on notice. Most insurance policies require the insured to give the agent notice within a specific period of time after the insured knows or should have known about the loss: otherwise, the claim is barred. Check your policy and determine the notice deadline. 

You should also check if your policy lists diseases or epidemics as covered events or exclusions. After the SARS outbreak of 2002, many policies were updated to exempt viruses and pandemics. The terms of your policy will dictate whether you have a claim. 

In addition to providing notice, track all your losses since coronavirus began impacting your bottom line. For example, keep track of your profits and maintain records to compare them to the same periods in past years, or track your workforce attendance before and after the outbreak. Your insurer will require detailed proof of your losses, and if your claim is denied, you can use the same documentation as evidence in court. 

The attorneys at McAlpine, PC have decades of experience representing plaintiffs in insurance coverage lawsuits and are available to assist you if you have any questions.  

[1] Friends of Danny DeVito, et al., v. Tom Wolf, et al., Case No. 68 MM 2020, Supreme Court of Pennsylvania, Middle District; see also Jordan Rand, “Pa. Ruling Strengthens Arguments For COVID Loss Coverage,” Law360.com, April 16, 2020.