A recent Massachusetts Superior Court decision provides guidance on insurance claims for loss of business income caused by the coronavirus pandemic. The guidance is not unexpected, but it is not good news for business owners. In the decision, Verveine Crop. v. Strathmore Insurance Company, Judge Janet Sanders of the Suffolk County Business Litigation Session took up the claims of a restaurant owner whose business income took a sharp drop due to operating restrictions imposed by Governor Baker. The owner asserted that its financial losses should fall under the business interruption coverage of its commercial property insurance policy. This claim has a surface appeal, but the restaurant’s policy (like many commercial policies) provided coverage only for losses caused by “direct physical loss of or damage to property.” Based on the plain meaning of this phrase, and on recent cases from other states, Judge Sanders found that coverage would be triggered only by tangible, observable damage to real or personal property (damage that might be caused by a fire or an earthquake, for example). Restrictions on use imposed by a governmental authority are intangible causes of business loss, and fall outside the scope of coverage.
One issue left open by Judge Sanders’s decision centers on the possibility of viral contamination inside a building. The restaurant owner had suggested, based on prior case law, that contamination by an agent like a virus, carbon monoxide, or asbestos, might constitute tangible, physical damage within the meaning of business interruption coverage, even if there was no observable damage to any real or personal property. Judge Sanders noted, however, that the restaurant had not alleged any such contamination, and therefore found it unnecessary to decide the issue. This is an argument that might be developed in future cases, but it would likely require allegation and proof of actual viral contamination in order to be considered by a court.
Although coverage for COVID-related business interruption losses will generally be difficult to establish, there is some variation in the language providing this coverage from policy to policy. Close review of the policy terms is always recommended, and legal advice should be sought where there is some doubt about the viability of the claim.
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