In Brown Jug, Inc v Cincinnati Ins Co, the plaintiffs, restaurants and entertainment venues, made claims against their respective commercial insurance policies alleging a loss of income as a result of COVID-19 and the related executive orders issued to combat the spread of the disease. The policies provided that the insurer would compensate the plaintiffs only if (1) they suffered a “direct physical loss or damage to” their covered property, or (2) a loss to a nonpolicy holder’s property prevented access to the plaintiffs’ property. As is always the case with insurance policies, this language is crystal clear and not up to multiple forms of interpretation that will lead to years of litigation (yes, that’s extreme sarcasm).
Trying to satisfy the “direct physical loss” requirement, the plaintiffs alleged that: (1) COVID-19 caused tangible harm to individuals who entered affected restaurants and subsequently became infected; (2) COVID-19 caused economic harm to the businesses because customers were unwilling or unable to patronize the establishments; (3) COVID-19 caused physical loss and damage by destroying and physically altering property (such as surfaces) and by rendering the property unusable and unsafe, specifically, when droplets containing the virus landed on surfaces, they transformed them into a “fomite”; and (4) money was spent on cleaning supplies and rearranging furniture after a COVID-19 outbreak.
The court; however, held that the plaintiffs failed to allege sufficient facts that COVID-19 caused a “direct physical loss” of or damage to their property or that the virus physically and directly altered property by its mere presence. The plaintiffs further failed to demonstrate that property was lost or damaged in a manner that required it to suspend operations to “repair, rebuild, or replace” said property (also a policy requirement). The court also noted that cleaning and reconfiguring losses have previously been held to not constitute physical or economic losses. The plaintiffs made several additional arguments that were also rejected by the court.
While Brown Jug provides some much-needed clarity on COVID-19 loss of income claims as a “direct physical loss” in commercial insurance policies, business interruption loss of income claims resulting from COVID-19 are not so cut and dry. If your business has business interruption insurance coverage and has suffered loss of income relating to the COVID-19 pandemic, consult an attorney if you’re considering making a loss of income claim.