In the fifteen days since the spread of COVID-19 infections became a critical concern in the United States, at least five businesses have filed declaratory judgment actions seeking a declaration that their commercial property insurance policies provide business interruption coverage for losses related to COVID-19. Although the suits were filed in very different venues, the plaintiffs in all of them use some of the same basic allegations to support the claims for coverage under their respective policies. Meanwhile, medical literature and learning about the transmission of COVID-19 continues to raise questions that could fundamentally undercut the claims used to support the growing number of business interruption claims.
The first known suit in the United States was filed in Civil District Court for Orleans Parish, Louisiana on behalf of the owners of Oceana Grill.[1] In their declaratory judgment suit the owners of that restaurant alleged that the virus “is physically impacting public and private property.” They further asserted that “the deadly virus physically infects and stays on the surfaces of objects or materials…for up to twenty-eight days,” as a way of articulating the type of property damage that is a necessary predicate to coverage under most policies that provide business interruption coverage. Based on those allegations, Oceana Grill’s owners asked the Court to declare that, “because the policy…does not contain an exclusion for a viral pandemic, the policy provides coverage to the plaintiffs for any future civil authority shutdowns in the New Orleans area due to physical loss from Coronavirus contamination and…business income coverage in the event that the coronavirus has contaminated the insured premises.” They specifically did not seek, however, a determination of whether the Coronavirus is physically in the insured premises, the amount of damages, or any other remedy besides declaratory relief.
Less than ten days later, the Choctaw[2] and Chickasaw[3] Nations of Oklahoma each filed similar suits for declaratory judgment in Oklahoma State Court. Their suits likewise alleged that, “[a]s a result of the pandemic and infection, the Nation’s Property sustained direct physical loss or damage and will continue to sustain direct physical loss or damage coverage by the policies…” Their petitions do not include the same level of specific allegations of property damage included in the Oceana suit, nor do they suggest that the Nation’s business operations were ordered closed by the governor or other local authorities. Such an allegation would be interesting in the context of those suits given that the business operations at issue, including casinos, restaurants, and hotels, all operate on tribal land where the plaintiff Nations themselves have the ultimate authority to order the business operations to close. In fact, both the Choctaw and the Chickasaw Nation’s web sites indicate that the Nations have temporarily closed their casinos, restaurants, and other business to help stem the spread of COVID-19.
The fourth lawsuit was filed in the Superior Court of Napa County, California by the owners of the French Laundry and Bouchon Bistro.[4] They are represented by some of the same plaintiff’s attorneys as the Oceana Grill case and included many of the same allegations as Oceana Grill’s declaratory judgment action. The one key difference between the two suits is that, in the California case, the plaintiffs allege that the Napa County Health Officer, Karen Relucio, ordered all individuals living in the county to stay at home and all non-essential businesses to close based on an express finding that there is “evidence of physical damage to property” as a result of the virus. French Laundry’s owners claim that, as a result of that order, they are specifically prohibited from accessing their property and have had to furlough more than 300 employees. Like the plaintiffs in Oceana Grill, French Laundry’s owners do not seek a determination of whether the coronavirus is actually in the insured premises or of the amount of damages they are entitled to recover as a result of the closures. They only seek a declaration that their insurers are required to provide coverage for losses resulting from the virus-related closures and the alleged property damage.
A group of Chicago business owners filed the fifth lawsuit in the United States District Court for the Northern District of Illinois’ Eastern Division on March 27, 2020.[5] Those owners cite Illinois Governor Jay Pritzker’s March 15, 2020 order closing all restaurants, bars, and movie theaters and his March 20, 2020 order closing all non-essential businesses as the source of their business interruption losses. They allege that Society Insurance denied their business interruption claims without conducting any investigation at all—and in fact circulated a memorandum to Society’s “agency partners” indicating that the claims were not covered by Society’s policies even before the plaintiffs had submitted a claim. The plaintiffs in the Illinois suit also cite an older Illinois case in which an insured sought coverage for the cost of removing asbestos containing building materials from its carriers for the proposition that, as a matter of Illinois law, “the presence of a dangerous substance in a property constitutes ‘physical loss or damage.’”[6] They also allege that the fact that the insurance industry has created specific exclusions for virus and pandemic-related losses undermines the insurance carrier’s assertion that the presence of a pathogen like novel coronavirus does not cause physical loss or damage to property. From their perspective, “if a virus could never result in ‘physical loss’ to property, there would be no need for such an exclusion.”
All the plaintiffs who have filed suit so far allege that they have or will sustain some form of damage to their property as a result of the coronavirus’ spread. And yet, none of them specifically asserts that their insured property was actually contaminated with the virus or required them to incur extraordinary costs to decontaminate or disinfect the property before it could reopen and go back to business as usual. In that sense, all of the suits present significant procedural and substantive questions that the courts will have to resolve before entering a declaratory judgment in favor of the plaintiff.
Procedurally, the question is whether an actual case or controversy about coverage exists in the absence of a showing that the insured property sustained actual damage. Federal law and most state codes of civil procedure prohibit a court from issuing a purely advisory opinion in a declaratory judgment action. That means that unless the insured can demonstrate that its property was actually damaged—contaminated with the novel coronavirus in this instance—it may not be entitled to obtain the type of declaratory relief sought in these early suits.
The procedural issue, in turn, leads necessarily to a substantive question of whether a particular restaurant, casino, or hotel is contaminated with the novel coronavirus and has sustained property damage. It also begs the question how long property damage caused by contamination with the virus lasts because that will determine the “period of restoration” and “extended period of indemnity” commonly referred to in business interruption policies. Those periods are typically defined in terms of the time that it takes to rebuild or replace the damaged property and the periods involved are often expressed in weeks or months. In the case of contamination with a virus or pathogen, however, the time needed to repair or replace the “damage” could well be much shorter.
A recent study published in the New England Journal of Medicine reported that the novel coronavirus is detectable for up to four hours on copper, up to 24 hours on cardboard, and up to two to three days on plastic and stainless steel.”[7] But Joseph Allen of Harvard University’s T.H. Chan School of Public Health noted in an opinion piece for the Washington Post that the findings reported in the New England Journal of Medicine do not necessarily mean that a person can get sick by touching one of those surfaces within the period where the virus remains detectable.[8] Allen explains that while the virus can be detected for those periods of time, its half-life is considerably shorter. That means that the real risk of infection diminishes greatly over four or five hours, such that the risk of infection from touching that surface lower than when it was first contaminated. This may also suggest that overnight restaurant closures or even a sufficient break between lunch and dinner service is enough to reduce the risk of infection below the level that the plaintiffs in existing cases characterize as “property damage.”
As importantly, washing surfaces like plates, silverware, tables and chairs with soap and water is probably enough to kill the virus and disinfect the surface relatively quickly.[9] Those who have worked in the restaurant industry will note that this type of cleaning is part of everyday life in the kitchens and dining rooms of our restaurants. The plaintiffs in the Big Onion Tavern Group suit filed in federal court in Chicago allude to this issue in paragraph 50 of their complaint. They note that Governor Pritzker’s March 15, 2020 order closing bars, restaurants, and movie theaters cited guidance from the Illinois Department of Public Health, which noted that, “frequently used surfaces in public settings, including bars and restaurants, if not cleaned and disinfected frequently and properly, also pose a risk of exposure.”That language from the Illinois Department of Public Health, combined with guidance from other health organizations nationwide, suggests that restaurants, hotels, and even casinos can prevent or repair the “property damage” within a matter of hours or minutes, rather than the weeks or months that are the typical period of restoration in business interruption claims.
Chances are that we will see more cases like the business interruption suits already on file. Those claims will be litigated over the state of the science and expertise related to viral epidemics and will involve creative arguments on both sides related to whether the insured’s claims satisfy the “property damage” requirement of their insurance policies. As lawyers we can prepare for those disputes by understanding the science behind the virus and the real issues of repairing any property damage that exposure to the virus may cause.
Cajun Conti, LLC, Cajun Cuisine 1 LLC, and Cajun Cuisine LLC d/b/a Oceana Grill v. Certain Underwriters at Lloyd’s, London, et al., CA No. ________–___________, Civil District Court, Orleans Parish, State of Louisiana, March 16, 2020.
Choctaw Nation of Oklahoma v. Lexington Ins. Co., et al., CA No. CV-20-42, District Court of Bryan County, Oklahoma, March 24, 2020.
Chickasaw Nation Department of Commerce v. Lexington Ins. Co., et al., CA No. CV-20-35, District Court of Pontotoc County, Oklahoma, March 24, 2020.
French Laundry Partners, LP d/b/a The French Laundry; KRM, Inc. dba Thomas Keller Restaurant Group; Yountville Food Emporium, LLC dba Bouchon Bistro v. Hartford Fire Ins. Co., et al., CA No. ____________, Superior Court of California, Napa County, California, March 25, 2020.
Big Onion Tavern Group, LLC, et al. v. Society Ins., Inc., CA No. 20:CV-2005, United States District Court, Northern District of Illinois, Eastern Division, March 27, 2020.
Id. at para. 8 (citing Bd. Of Educ. Of Twp. High Sch. Dist. No. 211 v. Int’l Ins. Co., 720 N.E.2d 622, 625-626 (Ill. Ct. App. 1999)).
Aerosol and Surface Stability of SARS-CoV-2 as Compared with SARS-CoV-1, Correspondence, New England Journal of Medicine, March 17, 2020 at NEJM.org.
Don’t Panic About Shopping, Getting Delivery, or Accepting Packages, Joseph G. Allen, Washington Post, March 26, 2020.
For an excellent discussion of good cleaning practices, see Why Soap Works, Ferris Jabr, New York Times, March 13, 2020.