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UPDATED – Judicial and Legislative Updates: Business Interruption Coverage for First-Party Losses Caused by the Coronavirus (COVID-19) Pandemic

April 17, 2020


In my last blog on this subject, I discussed recent activity on the judicial and legislative front. Here, I will expand on that.

First, the litigation over COVID-19 business interruption claims has erupted. The cases include not only the hospitality industry but other industries as well, including law firms. The cases also involve policies that do, and do not, have virus exclusions. There have even been class actions filed in some states.

By Opinion issued April 13, 2020, the Pennsylvania Supreme Court made a ruling that could tilt the litigation playing field in favor of business owners. In Friends of Danny DeVito, et al, v. Tom Wolf, Governor, et al, the Court was asked to vacate the Governor’s March 19, 2020 Executive Order closing non-life sustaining business.

The authority for the Order was the Governor’s emergency powers during times of “natural disasters”.  “Natural disasters” is defined as:

Any hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide, snowstorm, drought, fire, explosion or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.

The petitioners argued that the COVID-19 Pandemic is not a “natural disaster” under the above-quoted definition because it is not included in the definition.

The Supreme Court rejected that argument. The Court concluded that the COVID-19 pandemic is a “natural disaster” because it “results in substantial damage to property, hardship, suffering or possible loss of life”. It went on to characterize the pandemic as a “disaster and catastrophe of massive proportions”. The Court also affirmed the Governor’s declaration that the entire Commonwealth is a disaster area.

There are a number of cases from multiple jurisdictions finding that the policy requirement of physical damage to property is satisfied by disease causing agents that do not actually alter the structure of the insured premises (e.g., noxious gasses, bacteria, vaporized chemicals, asbestos, etc.). This case furthers that argument in a different but applicable context. The insurance industry must have had events such as hurricanes, tornados, storms, floods, fires and explosions in mind when it drafted the coverages for property and casualty policies. By finding that the COVID-19 pandemic is similar to those events, the Pennsylvania Supreme Court took one step closer to finding that losses from COVID-19 pandemic come within the coverages.

On the legislative front, Pennsylvania and New York have now joined Massachusetts, Ohio and New Jersey in proposing legislation prohibiting insurers from denying business interruption claims for losses caused by COVID-19 to small business in their respective states. Congress is also considering backstop legislation that would cap the insurance industry’s exposure to COVID-19 pandemic claims.

Montgomery McCracken attorneys are available to assist clients with numerous issues related to COVID-19. Visit the firm’s Coronavirus (COVID-19) Resource Center for more information and updates on this constantly evolving situation.