Missouri Ruling Potentially Opens Door for COVID-19 Business Interruption Claims

On August 12, 2020, U.S. District Court Judge Stephen Bough for the Western District of Missouri ruled that a group of nail salons and restaurants may pursue claims for business income losses due to COVID-19 under standard property and casualty policies.

Insurers had won similar previous cases in a Michigan state court and a Washington, D.C., court, successfully arguing that coverage was not warranted because the virus travels through the air and does not cause “physical loss or damage” to covered property — a threshold issue for securing insurance proceeds under policies providing business interruption coverage.

In this most recent Order, the Court denied the insurer’s motion to dismiss the lawsuit, ruling instead that the plaintiff insureds can proceed with their claims to recover business interruption losses because the term “physical loss” (which is typically undefined in property insurance policies) should be broadly construed. Bough said the presence of COVID-19 was not a “benign condition,” and the plaintiffs plausibly alleged that particles were a “physical substance” that attached to and damaged their property, rendering them unsafe and unusable:

“Upon review of the record, the Court finds that Plaintiffs have adequately stated a claim for direct physical loss. First, because the Policies do not define a direct “physical loss” the Court must “rely on the plain and ordinary meaning of the phrase.” The Merriam-Webster dictionary defines “direct” in part as “characterized by close logical, causal, or consequential relationship.” “Physical” is defined as “having material existence: perceptible especially through the senses and subject to the laws of nature.” “Loss” is “the act of losing possession” and “deprivation.”

Applying these definitions, Plaintiffs have adequately alleged a direct physical loss. Plaintiffs allege a causal relationship between COVID-19 and their alleged losses. Plaintiffs further allege that COVID-19 “is a physical substance,” that it “live[s] on” and is “active on inert physical surfaces,” and is also “emitted into the air.” COVID-19 allegedly attached to and deprived Plaintiffs of their property, making it “unsafe and unusable, resulting in direct physical loss to the premises and property.” Based on these allegations, the Amended Complaint plausibly alleges a “direct physical loss” based on “the plain and ordinary meaning of the phrase.”

This decision seems to be the first known victory for policyholders in suing their insurers for improperly denying claims related to losses caused by the shutdowns due to COVID-19.

The case provides a potential roadmap for policyholders who have suffered financial losses due to COVID-19. While the Court did not reach the merits of the ultimate claim, the Order is supportive to policyholders seeking to secure business interruption coverage for lost profits and other expenses resulting from the COVID-19 pandemic.