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Litigation Over COVID-19 Business Interruption Insurance Claims Continues

Alexander J. Anglim

When COVID-19 caused businesses to shut down, many looked to their insurance companies for relief under their “business income” insurance provisions. Many insurers declined to cover such claims, resulting in litigation. Based on press reports, it seems that most of the trial-level decisions in those cases have gone in the insurers’ favor. Some of those cases have reached appellate courts and it seems the early trend at the appellate level favors insurers, rather than policyholders.

For example, just a few days ago, the Tenth Circuit Court of Appeals affirmed a district court’s dismissal order in favor of the insurer. Sagome, Inc. v. Cincinnati Ins. Co., ___ F.4th ___, 2023 WL 18796 (10th Cir. Jan. 3, 2023), The Sagome case arose from the shutdown of a restaurant in Aspen, Colorado. Among other things, Sagome’s policy required that any shutdown be caused by “accidental physical loss or accidental physical damage.” Id., at *1. The court held that the policyholder “did not—and could not—plead such damage, because COVID-19 does not physically injure or harm property.” Id., at *3. The court, predicting Colorado law, held that the claim was not covered and affirmed the trial court’s decision for the insurer.

However, that is by no means the final word on this issue. In other cases, policyholders are developing and presenting evidence that COVID-19 does, in fact, cause property damage. For example, in September 2022, the Vermont Supreme Court held that the policyholder could proceed with discovery in an effort to prove that such damage exists and, thus, that the policyholder’s losses are covered. Huntington Ingalls Industries, Inc. v. Ace American Ins. Co., No. 2021-173, ___ A.3d ___, 2022 WL 4396475 (Vt. Sept. 23, 2022. The Huntington Ingalls case (and others like it) bears watching.

Regardless of how the remaining COVID-19 insurance cases pan out, it bears noting that if it were not for the CARES Act, the economic damage from the pandemic could have been far worse. For the many businesses that were unable to access their insurance policies, the only available COVID relief was via government programs (e.g., the Paycheck Protection Program under the CARES Act). Thankfully, those newly-created programs succeeded in keeping many companies in business that otherwise might have failed.

-Alexander J. Anglim, Outside General Counsel

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