A verdict for Lloyd’s in the first Covid-19 business-interruption lawsuit to go to trial highlights insurers’ strength in such cases in the U.S., according to a new report published by Bloomberg Intelligence (BI) called Insurers’ Strong Defenses in Covid-19 Coverage Suits. BI’s litigation tracker shows insurers have won dismissal in over 80% of rulings. Though this trend should extend, says BI, risks can be seen in a few decisions holding that a shutdown order constitutes physical loss, requiring coverage.
The judgement is in contrast to the recent UK decision in the FCA case, where a general victory for the business owners who were required by law to close has prompted millions in claims payouts. The BI case itself has also caused some reputational harm to UK insurers, given the hostile media coverage and social media commentary.
A Feb. 10 trial win for Lloyd’s in a business-interruption coverage lawsuit by a New Orleans restaurant underscores insurers’ strength in such cases in the U.S, believes BI. The suit against Lloyd’s was in the minority in alleging that coronavirus was present on premises, and the policy at issue lacked a virus exclusion. Nonetheless, the court ruled for Lloyd’s, denying coverage. Though no reason was given, the verdict suggests, says BI, that the court found that neither the presence of the virus nor government shutdown orders constituted physical loss for purposes of coverage.
“The number of court rulings dismissing Covid-19 business-interruption suits far exceeds those allowing cases to proceed, a trend we expect to continue in the U.S. Courts are throwing out cases primarily because the suits don’t sufficiently plead there was a physical loss of property or physical damage, or because the policies at issue contain virus exclusions,” said BI.
“The few cases that survived mostly did so because the coronavirus allegedly was on the premises and there was no virus exclusion. An Ohio federal court and a North Carolina state court are the first to require coverage, holding that shutdown orders constitute a physical loss. Reversals on appeal are possible.”
The note from BI adds that insurer defences against Covid-19 business-interruption suits are strong, but have cracks. Most rulings have rejected cases because they don’t claim the virus was on-site, undermining physical loss requirements.
“Even if the Coronavirus was present, as alleged in New Orleans, Missouri and some other cases that survived, it may not constitute physical loss or be found to have caused extended closings. Still, outcomes will vary by policy and state, with Ohio, North Carolina, Washington and potentially New Jersey rulings outliers for now in treating shutdown orders as triggering physical-loss coverage.
“Virus exclusions offer another defence. Notably, Cincinnati Financial policies didn’t contain them, and neither did Lloyd’s in the New Orleans case. Early estimates put small-business-closing losses at $255-$431 billion a month.”
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