The COVID-19 Pandemic and Insurance Coverage Lawsuits
The first COVID-19 lawsuit was filed by a Louisiana restaurant seeking coverage under a first-party property policy for future business losses due to government orders in response to the coronavirus pandemic.
The complaint alleges that the direct physical loss requirement of coverage is satisfied by the presence of the virus within the insured premises. The restaurant seeks to analogize the loss to claims involving lead or gaseous fumes.
The complaint offers insight into the arguments policyholders are likely to make in seeking coverage for coronavirus related losses under first party policies. It also offers insight into the type of provisions that are likely to be in dispute.
In the case, Cajun Conti, LLC v. Certain Underwriters at Lloyds, London, filed in Louisiana state court (Orleans Parish), the restaurant seeks coverage under a first-party property policy for future business income losses due to state and local civil emergency orders limiting the number of the restaurants patrons and its hours of operation. The lawsuit invokes the policy's business personal property, business income and extra expense, and ordinance or law coverage. The complaint seeks a declaratory judgment that the policy's direct physical loss requirement is satisfied and the civil orders trigger the policy's civil authority coverage.
The complaint asserts that the contamination of the restaurant by the virus qualifies as a direct physical loss because the virus remains on the surface of objects or materials for up to 28 days, with the ability to infect others. The complaint specifically cites in support Louisiana precedent on lead or gaseous fumes. Also of significance is that, unlike most first-party policies, the policy at issue allegedly does not have an exclusion for losses due to viruses or bacteria (at least as alleged in the complaint). If accurate, the lack of such an exclusion may limit the coverage dispute to whether the direct physical loss requirement is satisfied.
This is only the beginning of the types of insurance coverage lawsuits we will see as a result of the coronavirus pandemic. It does not appear from the complaint that the insurer actually denied coverage before the insured initiated suit. This raises ripeness and justiciability concerns and suggests policyholders may be angling to get their disputes into court even before the claims-handling process may be completed, particularly where, as here, the policy does not contain a bacteria or virus exclusion.
In Ontario, the eligibility to make a claim under your business’ insurance policy will vary upon the terms and exclusions contained in each individual policy. It is well established law in Ontario that coverage provisions are to be interpreted broadly and exclusions narrowly.
The insured has the onus of bringing itself within the basic coverage agreement. The onus then shifts to the insurer to bring itself within the scope of any exclusion. The onus then shifts back to the insured to bring itself within the scope of any exception to an exclusion.
If you believe your business has or will sustain losses due to the COVID-19 pandemic, please contact us for a consultation.