A momentous ruling pertaining to COVID-19 business interruption claims was reached by a court in Missouri last month. Much to the displeasure of insurance companies, US District Court Judge Stephen Bough for the Western District of Missouri ruled that business income loss due to the coronavirus may be covered under standard property and casualty policies, as long as the claimant can prove direct physical loss.
This decision provides a potential roadmap for business policyholders who have been affected by COVID-19, according to Alex Roje, partner, Insurance Recovery & Counseling Practice Group at Lathrop GPM. While any decision from the Western District of Missouri is subject to appeal to the United States Court of Appeals 8th Circuit, for now, the Order serves as persuasive authority supporting policyholders’ efforts to secure business interruption coverage for loss of profits and other business income.
“This is the first positive pro-policyholder decision on business interruption issues, and for that reason alone, it’s very important,” said Roje. “Until now, we’ve had only three written decisions on these issues, and they’ve all come out in favor of the insurers. For policyholders, this is important because it shows that there’s at least some path towards recovery in this litigation.
“So far, I think a lot of policyholders have been biding their time, sitting and waiting to see what will happen, and that’s why I think any kind of positive decision for policyholders is going to have an impact. Right now, given the financial distress that’s going on, policyholders are reticent to invest in litigation that is uncertain. Likewise, attorneys who are representing smaller policyholders and smaller businesses on a contingency basis are also reticent to take that on because that’s an investment on their part. So, this is a very important ruling from that standpoint.”
While the Missouri ruling is pro-policyholder, it is also quite limited. All it’s really saying is that policyholders can make a legal claim against their insurer for breach of contract should their insurer give a blanket denial for COVID-19 related business income loss. But this is important because a lot of policyholders have been holding back from making an insurance claim because they know they’re going to get a denial, and they don’t want to waste their time and money fighting with their carrier.
“What we’ve been telling our clients is: ‘That may be true, but the only way to be sure that you won’t recover anything is by not making a claim.’ Making a claim to the carrier is the obvious initial step you need to take, but this decision is saying something different,” Roje told Insurance Business. “This decision is saying that, as a matter of law, you can make a claim that an insurance company breached their contract (the insurance policy) by denying your claim outright, and saying there is no direct physical loss. This court is saying [the insurers are not right in doing that]. You still have to present your evidence and make your proof, but if everything that the policyholder says [regarding physical damage and business income loss] is true, you can state a legal claim.”
The biggest challenge for policyholders who decide to take their insurers to court is going to be figuring out whether they have actual evidence of COVID-19 contamination at their business. That’s going to be “the hurdle,” Roje admitted, because a lot of businesses were closed under mandatory shutdown orders before there were any official testing procedures. Even now, there is very limited testing, so it’s going to be very difficult for businesses to prove that someone infected with the virus was present and that their property was somehow contaminated.
“I think the insurance companies are going to continue to do what they’ve been doing all along, which is to vigorously fight this in the courts. And at the same time, they will continue their lobbying campaign in state legislatures,” Roje added. “I know that the insurers feel very strongly that they’re right in their denials of coverage, and they’re going to continue to fight this. Even if the insurers lose an appeal, and the policyholder in this case is able to get past the pleading stage and actually engage in some actual discovery and litigation […] it’s still going to be a challenge [for the policyholders to win].”
When asked whether she expects to see more litigation as a result of the Missouri ruling, Roje said the floodgates aren’t open just yet. She commented: “There are hundreds of lawsuits pending, but in the grand scheme of things, that’s not really much considering how many potential lawsuits there are sitting out there. I do think it’s going to move the needle, but I think what people are really waiting for is a big decision out of an appeals court, or perhaps a big decision coming out of California, because California law is policyholder-friendly on this issue. If we get a positive decision coming out of California, that could really open the floodgates.”