Do I have Coronavirus Insurance Coverage? The Clauses in your Policy Might Answer that Question.

Mar 25, 2020   

           The spread of COVID-19 threatens to devastate South Florida’s economy, which relies heavily on its hospitality industry. The Miami Herald reported that as of March 18, the 150,000 hotel rooms in Miami-Dade County alone, plummeted from an occupancy rate of nearly 90 percent down to 20 percent. That number will likely approach zero as Miami-Dade County Mayor Carlos Gimenez ordered the closure of all non-essential business by March 19 at 9:00 p.m., and global travel restrictions are now in effect. These measures could last several weeks, at minimum, during an otherwise busy and profitable tourist season in South Florida. The losses to the hotel industry are expected to enter into the billions, and that does not include losses from related business, such as restaurants, bars, entertainment venues, and tour operators.

           One of the only potential sources of recovery to Florida business owners may be from their insurers.  In this blog post, we review three applicable types of coverage commonly found in a business insurance policy.  Whether coverage is available will depend upon numerous factors, including the specific language of a company’s particular policy and the manner in which the courts interpret those policies.

Business Interruption Coverage

           Business interruption insurance coverage is intended to protect companies against the loss of income from unexpected events that cause direct physical loss or damage.  Many standard business insurance policies do not define what constitutes a “direct physical loss” necessary to trigger coverage.  In the case of a typical disaster such as a fire or windstorm, determining whether direct physical loss or damage has occurred is generally simple, although the question of whether Hurricane Katrina caused mass flooding or wind damage became far more complex than usual.[1]  In the case of the spread of a virus such as COVID-19, this exercise is more complex.  However, a number of decisions indicate that the closure of a business due to COVID-19 may, in appropriate circumstances, constitute direct physical loss sufficient to trigger insurance coverage.

           In 2005, a federal appeals court addressed the issue of whether a well contaminated by e-coli bacteria constituted a direct physical loss or property damage.[2]  The court noted that although the insurance policy did not define physical loss, it did define “property damage” as “physical injury to, destruction of, or loss of use of tangible property.”[3]  Under that standard, the court concluded that a direct physical loss or property damage could arise where the “functionality” of the property was “nearly eliminated or destroyed”, or where the property was rendered “useless or uninhabitable” as a result of the presence of the bacteria.[4]

           In a foundational 1968 decision, the Colorado Supreme Court held that where gasoline infiltrated the soil in and around a building, causing it to become uninhabitable and highly dangerous to use, there was a direct physical loss within the meaning of an insurance policy.[5]  Importantly, the court rejected the notion that the physical loss or damage had to occur to the building itself, quoting the following reasoning from a California appeals court:

To accept appellant’s interpretation of its policy would be to conclude that a building which has been overturned or which has been placed in such a position as to overhang a steep cliff has not been ‘damaged’ so long as its paint remains intact and its walls still adhere to one another.  Despite the fact that a ‘dwelling building’ might be rendered completely useless to its owners, appellant would deny that any loss or damage had occurred unless some tangible injury to the physical structure itself could be detected.  Common sense requires that a policy should not be so interpreted in the absence of a provision specifically limiting coverage in this manner.[6]

         In a similar vein, courts have found a “direct physical loss” to have occurred where:

  • homes were threatened by a future rock fall from an abandoned rock quarry, which had already caused extensive damage to neighboring homes;[7]
  • there was a strong chemical odor from methamphetamine cooking by other tenants which odor entered into the insured’s leased home;[8]
  • cat urine odor entered the insured’s condominium unit from a neighboring unit;[9]and
  • asbestos was released into a building.[10]

           In each of these cases, the court reasoned that the direct physical loss or property damage arose from the harm or risk of harm that rendered the subject property unusable or uninhabitable in some way.

           From these cases, a compelling argument can be made that where the spread or potential spread of COVID-19 renders a business premises unusable or uninhabitable for a period of time, business interruption loss coverage may be triggered.  There are of course cases that do not follow the decisions referred to above, and the success of this argument will depend on applicable state law.  At present, we are unaware of any Florida court that has adjudicated an analogous claim.[11]

           Aside from variations in state law, whether a business’s insurance policy covers losses arising from its inability to use its business premises will depend on the language of its specific policy.  Some policies may have language that requires damage to specific property.  Others may exclude coverage for claims arising from communicable diseases.[12] For these reasons, business owners must carefully review its policies and obtain proper legal advice concerning the availability of business interruption coverage.

Contingent Business Interruption

           Many insurance policies also contain contingent business interruption coverage that applies to damage which not only affects the company’s own property but also that of third-parties, such as its customers, suppliers, and delivery personnel.  This coverage ordinarily requires the same direct physical loss or property damage to trigger coverage as under the standard business interruption coverage, with the key difference being that the loss or damage is sustained to the third-party’s property as opposed to that of the policyholder.  Again, the applicability of this coverage is policy specific and therefore requires a careful review of the policy and advice from a competent professional.

Government Authority Coverage

           Insurance policies also routinely contain coverage for losses arising when an insured cannot access its own property because of an order made by a government authority, such as Mayor Gimenez’s recent order closing all non-essential businesses.

           Under most insurance policies, the government authority must completely block access to the business premises for this coverage to apply.  For this reason, Mayor Giminez’s initial orders limiting businesses’ operations likely does not trigger this type of coverage.  However, Mayor Gimenez’s more recent order for the complete closure of all non-essential businesses likely does, subject to any applicable exclusions.

Preserve Your Claims

           It is important that you take steps to immediately review all of your company’s insurance policies with competent professional advisors, notify your insurer of all of your claims, and keep track of all of your losses and expenses as a result of COVID-19.  Taking these steps may mean the difference between obtaining complete coverage for your losses or bearing the entirety of them on your own.

           We are currently reviewing insurance policies on behalf of for our clients across North America in the hospitality, real estate, retail and manufacturing sectors in preparing to challenge insurers who deny claims for the substantial losses they are only starting to suffer.  If you have any questions concerning your potential policy coverage for business interruption losses, feel free to contact us at 305-350-5690 or



[1]  State Farm v. United States, ex rel. Rigsby, 137 S.Ct. 436 (2016)

[2] Motorists Mutual Ins. Co. v. Hardinger, 131 Fed.Appx. 823 (3d Cir. 2005).

[3] Id., at 825.

[4] Id., at 826-827, citing Port Authority of New York & New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002).

[5] Western Fire Insurance Co. v. First Presbyterian Church, 165 Colo. 34 (1968).

[6] Id. at 40, quoting from Hughes v. Potomac Insurance Company, 199 Cal.App.2d 239 (1989) (emphasis added).

[7] Murray v. Sate Farm Fire and Cas. Co., 203 W.Va. 477 (1998).

[8] Farmers Insurance Co. of Oregon v. Trutanich, 858 P.2d 1332 (Or. Ct. App. 1993).

[9] Mellin v. N. Sec. Ins. Co., 115 A.3d 799 (N.H. 2015).  Notably, the court found that property damage included “not only tangible changes to the property that can be seen or touched” but also “changes that are perceived by the sense of smell and that exist in the absence of structural damage.”

[10] Port Authority of New York & New Jersey v. Affiliated FM Insurance Co., 311 F.3d 226 (3d Cir. 2002).

[11] In June of 2018, the District Court for the Southern District of Florida ruled that debris accumulating into a restaurant from neighboring road construction did not constitute direct physical loss or damages.  See Mama Jo’s, Inc. v. Sparta Insurance Company, 2018 WL 3412974 (S.D. Fla. June 11, 2018).  In so doing, the court did not decide whether to adopt a more “expansive definition” of the phrase “direct physical loss”, as set forth in the cases noted above.  Importantly though, the Court noted that even under the expansive definition, there was no such loss because the restaurant was not rendered uninhabitable as a result of the debris; it simply had incurred additional time and expense cleaning the debris.

[12] Following the SARS outbreak in 2003, many insurers began implementing such exclusions.