[co-author: Drew Wegner]

Since June 2022, policyholders have grown cautiously optimistic as two state appellate courts have ruled in favor of policyholders seeking coverage for business interruption loss stemming from COVID-19. As has been well documented since the pandemic began, courts have largely declined to find coverage for such loss, often based on the assumption that COVID-related closures do not satisfy the “physical loss or damage” requirement found in most policies.

In mid-June, however, a Louisiana appellate court found the presence of coronavirus on an insured’s premises caused covered “physical loss or damage” to property. And recently, a New York appellate court unanimously affirmed a ruling allowing a policyholder to pursue a business interruption claim for income lost during a government-ordered shutdown. The disputed policy, held by the New York Botanical Garden, covers business interruption loss but does condition coverage on physical damage to property. Hence, the First Department of the New York Appellate Division found that the insurance carrier could not properly rely on rulings conditioning coverage on a complete denial of access to property due to physical damage. Instead, the court found coverage was potentially available where an insured business experiences a slowdown of operations due to a pollution incident.

The court also acknowledged the viability of the Botanical Garden’s bad faith claim, finding the Botanical Garden had adequately alleged that the insurance carrier “did not conduct a complete or fair investigation of its claim, had no meritorious basis for denying the claim, and simply denied it in accordance with a business policy of denying COVID-related business interruption claims.”

The ruling serves as a reminder that not all business interruption policies are alike, and many contain more favorable triggers or feature ambiguities that can be leveraged to access coverage. Whether an organization’s business interruption losses are coronavirus-related or stem from other causes, it is important to review insurance policies closely and consult with coverage counsel to make sure you are exploring all potential theories of recovery.

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