Victory for insurance companies over COVID-related business interruption claims

Multiple Connecticut health care facilities claimed losses to their insurance companies after suspending their business operations during the COVID-19 pandemic.

But the Connecticut Supreme Court upheld the defendants’ denial of the claims, a reflection of many cases involving COVID-19 and insurance policies.

The plaintiffs, Connecticut Dermatology Group, Live Every Day and Ear Specialty Group of Connecticut, had identical policies with the defendants, Twin City Fire Insurance Co., Sentinel Insurance Co., Hartford Fire Insurance Co. and the Hartford Financial Services Group.

Counsel for the plaintiffs, Jonathan M. Freiman of Wiggin and Dana, and counsel for the defendants, R. Cornelius Danaher Jr. of Danaher Lagnese, did not respond for comment.

The plaintiffs’ policies said the insurance company “will pay for direct physical loss of or physical damage to covered property,” ‘‘will pay for direct physical loss of or physical damage to covered property,” and ‘‘will pay for the actual loss of business income [the insured] sustains due to the necessary suspension of [its] ‘operations’ during the ‘period of restoration,’” the opinion said.

The plaintiffs argued that their suspension of business operations during COVID-19 qualifies for this policy because the pandemic turned their businesses into “potential viral incubators that were imminently dangerous to human beings,” and the businesses had to undertake repairs to deter the spread of the virus, the opinion said.

“We conclude that, just as the properties were not physically altered in any way by the COVID-19 pandemic, the plaintiffs’ activities designed to prevent the transmission of the coronavirus on the properties were not ‘repairs’ in any ordinary sense of the word,” the opinion said.

In addition, the plaintiffs argued that the businesses “suffer the ‘physical loss’ of a property whenever the insured loses the productive use of property,” the opinion said.

The Supreme Court upheld the trial court’s decision to grant the defendants’ motion for summary judgment, and concluded that “there was no genuine issue of material fact as to whether the insurance policies did not cover the plaintiffs’ claims because the plaintiffs suffered no direct physical loss of … property.”

This case is one of many where businesses have attempted to seek coverage from insurance companies due to losses during the COVID-19 pandemic.

For example, in the U.S. Court of Appeals for the Second Circuit, a Connecticut business, Farmington Village Dental Associates, filed a case with similar claims against Cincinnati Insurance Co. The court dismissed the case, concluding that the policy “did not cover a loss incurred as result of the suspension of business operations during the COVID-19 pandemic because the loss was not physical, and the virus did not tangibly alter the property,” the opinion said.

In addition, in the Ninth Circuit, Mudpie, a business in California, also claimed that Travelers Casualty Insurance Co. should have covered its losses during the pandemic. Again, the court dismissed the case, saying “to interpret the policy to provide coverage absent physical damage would render the ‘period of restoration’ clause superfluous,” the opinion said.

The Connecticut Supreme Court found that the claims made in cases such as this have not been successful.

“The overwhelming majority of federal and state courts construing language similar or identical to the language contained in the policies at issue in the present case have reached the same conclusion,” the opinion said. “This reading of the term ‘direct physical loss of … property’ is supported by the dictionary definitions of the words ‘direct,’ ‘loss’ and ‘physical.’”

Related:

Ohio Supreme Court sides with insurers on COVID-19 business-interruption issue

Business interruption cases head to court

Another appeals court sides with insurer in pandemic BI case