The Key to Winning COVID Business-Interruption Claims: Say the Virus is Present

Policyholder attorneys pursuing COVID-19 business-interruption claims are hoping to persuade judges to accept a premise that many Americans appear to doubt: The novel coronavirus is physically present on property and poses an imminent danger to the public.

Pleadings that state that SARS-CoV-2 was physically present — combined with a policy with no virus exclusion — have been a winning combination in early rounds. Insurer motions for dismissal or summary judgment have been denied in six of nine cases that pleaded a physical presence and lacked an exclusion.

The Spangenberg Shibley & Liber law firm in Cleveland has defeated insurer motions in three cases so far, said firm partner Nicholas A. DiCello. The most recent victory came Nov. 17 in a lawsuit filed by Dino Palmieri Salons and Fish Furniture Shop against State Automobile Mutual Insurance Co.

Cuyahoga County Court of Common Pleas Judge Maureen Clancy denied the carrier’s motion to dismiss.

“While parts of plaintiffs amended complaint refer to the ‘probable’ presence of Covid-19 in their establishments, plaintiffs have also alleged the affirmative physical presence of the virus on their premises, and ensuing physical damage and loss,” Clancy wrote in her order. “In addition, other courts have found that allegations of the likely existence of COVID-19 particles at a business was enough to survive a motion to dismiss when similar policy language was at issue.”

DiCello said a growing number of attorneys are recognizing that pleadings that try to dodge the physical presence question, which are often filed by businesses that had virus exclusions in their policies, are not likely to prevail. In fact, he said attorneys who filed lawsuits on behalf of policyholders who had virus exclusions did a “disservice” to businesses with more legitimate claims. They chalked up a large number of losses that made if appear all coronavirus-related business-interruption claims lack merit, he said.

DiCello said his firm recognized early on that there’s no point in taking business-interruption claims to court unless there is no virus exclusion and the physical presence of the virus is alleged. Virtually all insurance policies require a “direct physical loss or damage,” he said.

DiCello said coronavirus is akin to smoke damage. The damage may not be visible, but the odor of smoke nevertheless diminishes the use of a property.

“Once the virus adheres to a property, the physical structure of that property has changed,” he said.

Now that state judges in Ohio have allowed lawsuits to proceed to discovery, DiCello said he intends to subpoena the Insurance Service Office for documents relating to the decision in 2006 to create a virus exclusion that now appears in most commercial property insurance policies. He said he has been to the “dusty basement of the ISO” before and expects to find documents that show insurers added the virus exclusion because they knew they would otherwise be liable to cover damages caused by a pandemic.

DiCello said its notable that the virus exclusion was created after the first SARS virus outbreak in 2003.

Insurance defense attorney Roy Mura, with Mura & Storm in Buffalo, N.Y., said DiCello makes a good argument, but it won’t fly in the long run.

Mura said some insurance companies decided not to adopt the ISO’s virus exclusion language in their policies because they believed their existing policy language protected them from paying for business income losses caused by a pandemic. He said some of his clients don’t use ISO forms at all.

Mura said attorneys have been making arguments similar to DiCello in numerous pleadings, but many of those cases were dismissed nonetheless.

“They cited a lot of the ISO stuff,” Mura said. “The best the policyholder attorneys are going to do when they make the ISO argument is the industry was concerned about virus-related claims due to the then-concluded SARS epidemic.”

Mura said lately, a growing number of pleadings cite scientific studies that make various findings about how long the novel coronavirus can survive on surfaces. He saw one assertion that the virus can survive 28 days, he said. The arguments have become so pervasive that he has started reading scientific journals that explain the virus’ behavior.

Mura said plaintiffs will not be able to prove that coronavirus is present on their properties. And even if it it is present, the virus can easily be cleaned. Courts have long established that damages that can be easily cleaned, such as dust settling on surfaces, are not covered by commercial property insurance policies.

That precedent will doom coronavirus claims, he said. “If you can get a can of Lysol and spray it, it’s dead,” he said. “The virus isn’t there.”

A likely policyholder response to that argument was revealed during a Friday afternoon webcast by the Merlin Law Group in Tampa, Fla.

Law firm President William F. “Chip” Merlin said it is “absurd” for insurance companies to insist that a business prove that coronavirus is physically present on a property to be paid for a business-interruption claim.

“Oh really? You got to have coronavirus in the presence and in the air and all that stuff and that’s the only way to collect from it and you’d rather have people die, and then you can go ahead and get coverage, rather than you close your business and make sure that they don’t die?” he said.

“We’ve pointed out that that’s kind of an absurd result to argue that and really against public policy. Only an insurance company would argue that you got to go ahead and let people die and then we’ll pay you for what your loss might be.”

Nonetheless, Merlin said his law firm is also including allegations that coronavirus is present in all of its business-interruption proceedings. He said his review of the cases that have survived motions to dismiss show that pleading the virus is present is a winning strategy.

“There are so many hundreds of suits out there and so many briefs, we can pick and chose what is best to emulate and what to avoid and also see if there are any better arguments out there,” Merlin said during the webcast.

A COVID-19 litigation tracker maintained by the University of Pennsylvania law school shows that insurer motions to dismiss were granted in 36 cases and denied in eight cases where the policy contained a virus exclusion. For cases with no virus exclusion, 10 dismissal motions were denied and 11 survived.

“I would definitely say that the dark empire has struck back pretty hard on this,” Merlin said. “I think our cases are pretty strong.”

About the photo: The interior of a Dino Palmieri Salon in Cleveland is shown. Photo courtesy of Dino Palmieri Salons.