This article originally ran in the Philadelphia Business Journal on September 18, 2020. All rights reserved.

To date, there have been over 700 lawsuits brought by policyholders against insurance companies that have denied business interruption coverage for losses sustained as a result of the Covid-19 pandemic.

Insurers are almost unanimously denying every claim across the country by taking the position that Covid-19 does not constitute a “direct physical loss or damage” to covered property because the virus does not physically alter or tangibly destroy the property like fire damage. While the law is clear in certain states that physical alteration to property is not required to satisfy the “direct physical loss” requirement, each case will ultimately turn on the specific facts.

Since the beginning of August, at least four separate courts issued rulings in the battle between policyholders and insurers for Covid-19 business interruption coverage. These rulings are instructive and provide two key takeaways for policyholders bringing such claims against insurers when coverage is denied.

First, to the extent possible, policyholders should allege the physical presence of Covid-19 at or on the insured property in order to satisfy the “direct physical loss” or “direct physical damage” requirement under most commercial property policies.

In certain situations, this may be accomplished when the policyholder has confirmation that someone infected with Covid-19 was present at the property. At a minimum, however, policyholders should allege the imminent threat of Covid-19 at the premises due to the virus’ presence in the community and ubiquity.

In three of the decisions where the court sided with the insurers – Rose’s 1, LLC v. Erie Insurance Exchange (D.C. Super. Ct. Aug. 6, 2020), Diesel Barbershop, LLC v. State Farm Lloyds (W.D. Tex. Aug. 13, 2020), and Malaube, LLC v. Greenwich Insurance Company (S.D. Fla. Aug. 26, 2020) – the policyholders failed to allege the presence of Covid-19 at or on their respective premises. In the one decision that found in favor of the policyholders – Studio 417, Inc. v. Cincinnati Insurance Company (W.D. Mo. Aug. 12, 2020) – the court allowed the case to proceed because, among other reasons, the policyholders specifically alleged that visitors to the property were likely infected with Covid-19 and thereby infected the insured property with the virus.

However, policyholders should still be cognizant of the fact that certain courts may still require a physical alteration or tangible destruction to property to satisfy the “direct physical loss” requirement, as did the court in Diesel Barbershop.

Second, policyholders should be cautious in bringing claims against insurers where the policy contains a virus exclusion precluding coverage for loss or damage “caused by or resulting from any virus.”

While policyholders may take the position that the virus exclusion is inapplicable because it was not the virus within the property that caused the loss but rather government closure orders, at least one court has rejected that argument where the virus exclusion contained “anti-concurrent causation” language. In Diesel Barbershop, the court found that the policyholders pled that Covid-19 was the reason for the closure orders being issued and the underlying cause of their losses, and, therefore, it was the presence of Covid-19 that was the primary root cause of their businesses temporarily closing and the virus exclusion therefore barred coverage. It is important to fully analyze the specific wording of all policy exclusions before deciding whether to file suit.

Although courts will continue to issue rulings in the ongoing coverage battle between policyholders and insurers over Covid-19 losses, policyholders who have filed lawsuits or are planning on doing so should use the rulings discussed in this article as guidance. However, a related issue is how insurance policies will change as a result of the Covid-19 pandemic. Will policies now have a specific pandemic exclusion somewhat akin to the virus exclusion following the SARS outbreak in 2006? If so, what price will policyholders have to pay to remove the exclusion from property policies? Although these are just a few questions policyholders should consider during their next policy renewal, it is important for policyholders to fully understand the scope of their coverage and, to the extent necessary, consult with brokers or attorneys to secure appropriate coverage.