As of February 2021, more than 1,500 COVID-related business interruption lawsuits have been filed in the United States. Of those 1,500 suits, 10 have been filed in Indiana state and federal courts with no decisions having been reached on the merits of the case. As shared in our previous updates Business Insurance Coverage for COVID-19 – Wins and Losses for Both Sides and Policyholders again Prevail in Business Interruption Claims v. Carriers, a positive outcome is still possible for many Indiana businesses as we await the courts to rule on whether coverage exists.
Three of the cases occurring in Indiana, Tom James Company, et al., v. Zurich Am. Ins. Co. and Indiana Repertory Theatre, Inc. v. The Cincinnati Cas. Co., et al, remain pending and will help decide the approach Indiana courts take when assessing coverage issues for businesses who faced, and continue to experience, pandemic-related closures and interruptions.
For many insureds, coverage will hinge on the court’s interpretation of what constitutes “direct physical loss” and whether applicable exclusions are present in their insurance policies. Although direct physical loss is easily argued when a catastrophic event such as an earthquake destroys a building, the same argument requires a more nuanced analysis of Indiana case law when determining whether the presence of COVID-19 should also be considered a direct loss.
In Indiana Repertory Theatre, both the insured and carrier cite Cook v. Allstate, a 2007 Indiana case that held that a brown recluse spider infestation of a house constituted a “direct physical loss” to the house. The Cook Court went on to share that a “physical condition that renders property unsuitable for its intended use constitutes a ‘direct physical loss’ even where some utility remains, and in the case of a building, structural integrity remains.”
An Indiana federal court recently ruled in MHG Hotels v. Emasco that a virus exclusion in the plaintiff’s policies precluded coverage for pandemic-related business closures. U.S. District Court Judge Richard Young explained in his entry for a motion to dismiss that because COVID-19 was “in fact the reason for the [business closures] . . . the [v]irus [e]xclusion applies and bars Plaintiff’s claims.”
While the MHG Hotels case is not favorable for policy holders, it should be noted that an appeal is likely in the case, and that the interpretation of this specific policy language is based on the federal interpretation of state law. Different legal conclusions may be reached depending on the language of each policy and state court interpretation of the same.
Currently, the Tom James Company suit is pending a motion to dismiss while the Indiana Repertory Theatre suit awaits a decision on a motion for summary judgment.
The upcoming decisions on these cases, and the appeals that will undoubtedly arise therefrom, will pave the way for many insureds seeking confirmation that business interruption insurance coverage exists.
Since the COVID-19 emergency began in March 2020, businesses across the United States have faced government shutdowns, slowed business activity, and claim denials for insurance coverage meant to protect them in the event of such disruptions. We will continue monitoring activity in the Tom James Company and Indiana Repertory Theatre cases as well as provide updates as new cases are decided or filed in other states.
For additional information and individualized guidance on this or any related topic, please contact one of the following KDDK attorneys: