By Larry Cook

Business Interruption

To trigger business interruption coverage, there must be “direct physical loss of or damage to property at premises” – the property described within the “Declarations” of the policy. This property damage requirement may not be satisfied on the basis that coronavirus-tied losses resulted in a general decline in economic activity. However, policyholders may argue that the presence of the coronavirus in a structure satisfies the “direct physical loss of or damage to” requirement.

The case frequently cited by policyholders, in support of an argument that the presence of the coronavirus in a structure satisfies the “direct physical loss of or damage to” requirement involved the release of an unsafe amount of ammonia from a refrigeration system contained inside a facility.

The court determined that, while structural alteration provides the most obvious sign of physical damage, a property can sustain physical loss or damage without experiencing structural alteration. The court concluded that ammonia, a dangerous gas, which rendered the buildings uninhabitable in this case constituted a “direct physical loss,” sufficient to trigger coverage.
A Federal Court in South Florida took a different view of what constitutes a “physical loss.” It held that a restaurant did not sustain direct physical loss from dust and debris generated by nearby roadwork because the situation could be remediated by cleaning.

Whether there has been “direct physical loss of or damage to” the covered property, may be for naught. Many business interruption policies contain an exclusion for “Loss Due To Virus Or Bacteria.” “Probably 99.9 percent of insurance policies do not cover the virus,” an insurance consultant told FOX Business. “There are specific exclusions.” The virus exclusion was added to most insurance policies in 2006 after SARS. The Insurance Services Office (ISO) endorsed the exclusion. The exclusion endorsed by the ISO specifically says insurance companies won’t pay for losses or damages — including lost business income – from “any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” The exclusion goes on to specifically state that it applies, among other things, to “business income,” i.e., business interruption.

COVID Cases Already Filed

On March 16,2020, a suit was filed in a Louisiana state court by a restaurant seeking a declaration of coverage for coronavirus-caused losses under a business interruption policy.

In likely the first case of its kind, Oceana Grill, which describes itself as “a well-known New Orleans restaurant in the heart of