The Supreme Court of Vermont has given the go-ahead for military shipbuilder Huntington Ingalls Industries, Inc. to pursue property insurance damages related to the COVID-19 pandemic. The case is Huntington Ingalls Industries v. Ace American Ins. Co., 2022 VT 45 (Vt. 2022). 

Huntington Ingalls Industries (Huntington Ingalls), the largest military shipwright in the United States, purchased a commercial property policy from a captive subsidiary, Huntington Ingalls Industries Risk Management LLC, in March 2020; the insurer, in turn, obtained multiple reinsurance policies for that property policy, one of which was Ace American. That same month, state officials began issuing business closure mandates in response to the rapid spread of COVID-19 (COVID). Huntington Ingalls comes under the umbrella of the "Defense Industrial Base," one of the sixteen "Essential Critical Infrastructure" sectors designated by the federal government to remain open during what would become the COVID-19 pandemic. The federal government also ordered the sixteen "essential" sectors to follow guidelines issued by national and state health authorities to minimize the spread of COVID. Huntington Ingalls complied with the order, implementing protocols for social distancing, enhanced cleaning and sanitizing practices, and return-to-work procedures for employees who tested positive for or were exposed to COVID. By the end of April 2021, however, more than 6,000 Huntington Ingalls employees had tested positive for COVID. Huntington Ingalls argued that droplets from COVID-positive employees adhered to surfaces inside the shipyard and infected other employees who also touched those surfaces. 

Huntington Ingalls sought coverage for losses related to the pandemic, alleging that "the virus adhered to surfaces for several days and lingered in the air for several hours at the shipbuilding yards."  The reinsurers filed for summary judgment, saying Huntington Ingalls "had not sufficiently alleged that 'direct physical loss or damage to property' had occurred." The trial court found that, rather than the alleged property loss, Huntington Ingalls had suffered a loss of income because it was able to maintain business operations, albeit on a lower scale. The reinsurers' motion for judgment on the pleadings was granted, and Huntington Ingalls appealed.