Client Alert


Business Owners with COVID-19/Government Shutdown Orders File Business Insurance Claims: A New Wave or Just a Ripple?

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HMB’s Insurance Advisory Practice is continuing to monitor developments on hundreds of cases filed nationwide by business owners against insurers over denials of business interruption COVID-19 and government shutdown order related claims. HMB is tracking how courts are deciding these novel claims and reporting on these observations. This update contains some highlights of recent favorable decisions of potential significance for business owners and policyholders.

As a prefatory note, in the more than 1,000 COVID-19/government shut down order related business interruption related cases filed to date, the majority of decisions have been in favor of the insurer. However, we are now seeing a new trend of cases with business owners as the prevailing party.

Summary Judgment Win for Policy Holder

At the forefront of that trend is a North Carolina state court case in which, on October 7, 2020, the trial court dealt a notable blow to a well-known business interruption insurance carrier, Cincinnati Insurance. More specifically, in that case, a group of sixteen restaurants sued Cincinnati Insurance for denying coverage of their claims. As expected, Cincinnati Insurance argued its policies provide no coverage for pure economic harm but only for a direct physical loss to property, which Cincinnati Insurance asserted means a physical alteration to property. But, the Court, in granting a motion for summary judgment for the policyholders, found the insurance policy language ambiguous, and any ambiguity is construed against the insurer. (Notably, Illinois law also construes ambiguous policy language to favor the insured. See State Farm Mutual Automobile Insurance Co. v. Bierman, 139 N.E.3d 618, 625, IL App 5th (2019)). The North Carolina trial court found that under the policies these businesses all suffered a direct physical loss when they “were expressly forbidden by government decree” from accessing their property. Cincinnati Insurance has announced it will appeal this trial court ruling, but the burden is on the insurer to overturn the trial court’s summary judgment ruling.  A full copy of the North Carolina Court’s decision can be found here.

Policyholder with Virus Exclusion in Policy Allowed to Advance

Additionally, on October 26, 2020, a Pennsylvania state court denied an attempt by another business interruption insurance carrier, Lloyd’s London, to dismiss a restaurant’s lawsuit. Although the court did not provide any reasoning behind its decision, the court rejected the insurer’s arguments that the virus does not cause any physical damage or constitute a physical loss, and the lawsuit will continue. Of particular significance and interest for the majority of business owners, the Lloyd’s London policy also contained virus exclusion language, but the court is still allowing the case to proceed. A full copy of the Pennsylvania Court’s decision can be found by here

Significance of Recent Decisions

To be clear, we are not expecting these decisions to mean that business interruption claims previously filed by business owners to be reversed by their respective insurers or that newly filed claims will be accepted.  However, we do expect further litigation on these issues and the ultimate questions of coverage are yet to be decided. These developments should also remind business owners that they need to preserve their rights under their insurance policies as coverage may eventually be available for these claims.  HMB will continue to keep you informed on these matters and should you have any questions or comments please feel free to contact us.

Contact us here for more information on business insurance interruption claims.

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