COVID-19 Business Interruption Claims Four Years Later: What Have We Learned?

Source: https://cclt.law.upenn.edu/

Four and half years ago the COVID-19 pandemic spread around the globe, bringing with it interesting, but challenging, legal problems for construction attorneys. Construction projects ground to a halt. Ever-changing guidance from authorities ranging from the U.S. Department of Labor to local health authorities resulted in a web of evolving obligations for general contractors and subs alike. One of the most closely watched legal questions was the wave of business interruption claims filed by plaintiffs, many of whom owned businesses impacted by government shutdowns. During the opening months of the pandemic, I noted that hundreds of business interruption claims had been filed by insureds across the country. At that time, the only thing certain was that although the outcome remained unknown, virus exclusions were likely to become more likely in the future. Needless to say, much has happened since early 2020.

What does the data say about the outcome of business interruption claims?

In sum, plaintiffs have had an uphill battle. A helpful resource for analyzing the outcome of business interruption suits is the Covid Coverage Litigation Tracker (“Tracker”), an insurance law analytics tool offered by Penn Carey Law of the University of Pennsylvania. According to its website, “[t]he Covid Coverage Litigation Tracker is a multi-sourced database and dashboard through which to view the unfolding insurance litigation arising out of the pandemic in federal and state courts. Widely cited in briefs, judicial opinions, and the press, the tracker also serves as a proof of concept for new methods to identify, track, and understand emerging case congregations in real time.”

Can a Virus Constitute Physical Loss or Damage?

According to the Tracker, a total of 2,393 cases have been filed. A quick glance at the interactive map indicates that the majority of intermediate courts of appeal and high state courts (25) have not ruled on whether COVID-related losses constitute physical loss or damage.  Of those intermediate and state courts which have ruled, 16 have said that COVID-19 cannot satisfy physical loss or damage.

Source: https://cclt.law.upenn.edu/

Ten of those rulings came from high courts, six came from intermediate courts.  Five states have had their high court hold that a COVID-19 loss can potentially satisfy the requirements for physical loss or damage, but those requirements were not met. The Tracker reports that Michigan, North Carolina, and Pennsylvania have had rulings going both ways. According to the Tracker, only Vermont has a high court ruling that (i) COVID can satisfy physical damage or loss, and that (ii) those requirements were met at the pleading stage. Not surprisingly, new filings have greatly decreased since the middle of 2021.

Source: https://cclt.law.upenn.edu/

What are the Most Common Rulings on Motions to Dismiss?

A look at merits rulings on motions to dismiss in state court shows that, by far the most common outcome was a full dismissal with prejudice, followed in frequency by denial, and then by a full dismissal without prejudice. Federal court rulings on motions to dismiss followed a similar pattern, with the most common outcome being a full dismissal with prejudice. Notably, a full dismissal with prejudice was more likely in federal courts than a denial. Business income was the most common type of coverage sought, followed by extra expense coverage, and civil authority.

Conclusion

Business interruption claims continue to be litigated, but the initial optimism of plaintiffs has faded with each dismissal. Hopefully the pandemic is a once in a lifetime experience, but the precedent of insureds’ unsuccessful coverage claims will likely be long-lasting. 

Patrick McKnight is a member of Fox Rothschild’s national Construction Practice Group. For more information, please contact him at pmcknight@foxrothschild.com. 

This article is provided for informational purposes only—it does not constitute legal advice. Readers should consult legal counsel before taking action relating to the subject matter of this article.