How Two Insured Businesses Obtained a Rare Victory in a Business Income Loss Claim During the Covid-19 Era.

Commercial Property Insurance Policies generally protect against loss of business income resulting from a covered cause of loss. By 2022, over two thousand lawsuits were filed against insurance companies by businesses that suffered loss of income due to the COVID-19 pandemic. See, https://cclt.law.upenn.edu

The large majority of these cases were either filed or removed to Federal courts across the country and eventually dismissed based on the insured's failure to prove that the virus resulted in "direct physical loss or damage" to property. By 2023, the legal community largely viewed the claims as unwinnable. https://www.corporatecomplianceinsights.com/covid-property-insurance/

While other firms were declining COVID-19 business income loss claims, KUTINSKY PLLC made a strategic pivot by pursuing coverage under a different policy provision for "crisis management." The reason for selecting this coverage provision? It did not require the insured to prove direct physical loss or damage to property. KUTINSKY PLLC was also able to extend the crisis management coverage to a second policy issued by the same insurer based on an email exchange during the policy renewal process. See, full opinion, infra (discussion of policy liberalization clause).

Shortly after the lawsuit was filed, the insurance company filed a motion to dismiss the claims based on the consistently successful defense that there was no direct physical loss or damage to property and therefore no coverage for loss of business income. The insurer further argued that the loss resulted from governmental orders and not the COVID-19 virus. In a rare defeat for the insurance company, the Federal Court adopted the argument of the insureds:

"Unlike the communicable disease coverage, the crisis management coverage does not require, and is in fact silent regarding, any government order restricting operations. The coverage under this provision only requires that the business income loss and expense be incurred 'due to a Crisis Event' like 'the release or imminent release of bacteria or virus that is likely to result in bodily injury or death . . . to persons at an Insured Premises.' Plaintiffs have sufficiently alleged that they suffered loss due to the release or imminent release of COVID-19. 'Hundreds of cases of COVID-19 were diagnosed among residents and employees of the facilities' and '[h]undreds of residents at the facilities experienced severe sickness and death ....' The facility residents were also uniquely susceptible to COVID-19 infections because they were elderly or infirm. As a result of the dangers presented by the 'release or imminent release' of COVID-19, Plaintiffs adopted protocols that impaired their operations, restricted access to their facilities, and increased their operational costs. To be sure, Plaintiffs implemented these protocols as a result of government orders. It is also equally true Plaintiffs did so due to the 'release or imminent release' of COVID-19. After all, the governors issued their orders in response to the actual and imminent release of the virus. It follows then that the Plaintiffs implemented their protocols in response to that same virus."

As a result of the court's well-reasoned opinion, the insureds' lawsuit joined a minority of cases across the country (approximately 73 in total) to survive a motion to dismiss. See, https://cclt.law.upenn.edu

Full opinion available here: https://www.casemine.com/judgement/us/6481596187375a178d34673e