Western District of Missouri Court Gives Potential Life to COVID-19 Business Interruption Claims

Western District of Missouri Court Gives Potential Life to COVID-19 Business Interruption Claims
By: Jason G. Wehrle, Esq.

Throughout the country a myriad of lawsuits have been filed by businesses against their insurers seeking business interruption coverage in connection with shutdowns caused by the COVID-19 pandemic. While the suits involve different parties and venues, one common thread is the lawsuits involves the question of whether COVID-19 and related government shutdown orders constitute a “direct physical loss” which triggers insurance coverage.   Perhaps not surprisingly, insurance companies have taken an aggressive approach in denying these claims.  Until recently, insurance companies had been finding success in having these claims dismissed by the Courts at an early stage.  That is until the Western District of Missouri rejected an insurer’s motion to dismiss on these grounds.

In Studio 417, Inc., et al. v. The Cincinnati Insurance Company, Case No. 6:20-cv-03127-SRB (W.D. Mo.), a group of hair salons and restaurants filed suit for declaratory judgment, wherein they allege the COVID-19 pandemic is a covered loss, obligating the insurer to provide coverage.   The policies at issue provide coverage for a “Covered Cause of Loss,” which the court defined as “accidental [direct] physical loss or accidental [direct] physical damage.” Order at 2 (emphasis and brackets in original). Importantly, the policies include no definition for “physical loss” or “physical damage.” Even more importantly, the policies do not contain virus or pandemic exclusions.

The Court in Studio 417, Inc. entered an order finding that the Plaintiffs had stated a valid claim for direct physical loss.  The Court opined that the Plaintiff’s allegation that the virus was a physical substance, which deprived Plaintiffs of their property by making it unsafe and unusable constituted a valid “direct physical loss.”  The Court also analyzed the policies’ civil authority coverage grant.  This grant provides coverage for business income loss resulting from action by a civil authority that prohibits access to the covered location.  The court found that a ban and/or limitation on indoor dining at these establishments could potentially hinder access to the property to a degree sufficient to trigger the civil authority coverage.

While the Studio 417, Inc. case is only at the motion to dismiss stage, this early ruling may provide a road map for subsequent claimants to follow.  Obviously, the strength of any insurance coverage claim rests with the particular language contained in the policy.  Most carrier uses different language and exclusions.  Some of these differences can be very subtle.  Nonetheless, if you have suffered a business loss due to COVID-19 and subsequent government prohibitions, you should speak with your insurance broker and/or attorney to review your policy to determine whether you have a colorable claim.