Two years after sweeping lockdowns came into force to prevent the spread of COVID-19, the case law is mounting in favor of insurers who were sued for denying claims.
A federal judge in California on Wednesday definitively rejected Creative Artists Agency’s lawsuit against Affiliated FM Insurance for refusing to cover losses linked to business closures forced by the virus. Following a long list of precedents, US District Judge Andre Birotte Jr. ruled that “direct physical loss or damage” policies do not cover pandemic-related policy claims.
When local governments began issuing stay-at-home orders in 2020, billions of dollars in claims, many from companies in the entertainment and live events business, poured in across the country. But instead of paying, insurers looked at the fine print and denied en masse. The industry collectively found that business interruption policies for loss of income excluded coverage for pandemic closures, claiming that physical loss or property damage was required. A legal war broke out: More than 2,300 lawsuits have been filed challenging coverage decisions, according to a COVID-19 insurance litigation tracker created by Penn law professor Tom Baker. Nearly 92 percent, or 792 of 862 cases considered for dismissal, have been dismissed.
the fate of CAAThe lawsuit, like others, revolved around whether there was “physical loss” in the insured properties. The agency claimed its losses were a “direct result of physical loss and damage” based on closure orders from civil authorities. The physical presence of the virus in the air and on surfaces, he said, made his facilities unfit for use.
Birotte rejected the argument, finding that CAA did not specifically identify how the virus particles caused a “physical disruption” to its buildings. “For example, some external force must have acted on the insured property to cause a physical change in the condition of the property,” she wrote.
In Inns of the Sea v California Mutual Insurance Co.., the first California appeals court case involving a COVID-19 coverage dispute, it was found that Inns also failed to identify any direct physical damage to property that caused its operations to be suspended despite allegations that it the virus was present in their facilities.
United Talent Agency’s nearly identical lawsuit against its insurer, Vigilant Insurance, ended the same way. “In the wake of the COVID-19 pandemic, many policyholders have made arguments similar to UTA’s, and most courts have rejected them,” read an April order from a state appeals court affirming the dismissal. of the case. “It is now widely established that temporary loss of use of a property due to pandemic-related closure orders, without more, does not constitute direct physical loss or damage.”
The judge also denied that there is coverage under a provision in the CAA policy that purportedly covers business interruption losses incurred by civil authority orders. The orders were issued to prevent the spread of COVID-19, Birotte found, not as a result of physical damage to property.
Regardless, CAA had a provision in its policy that excluded coverage for “any costs due to contamination, including the inability to use or occupy the property or any costs of making the property safe or suitable for use or occupancy.” .
CAA cannot deny that the civil authority closure orders were issued in response to COVID-19 and that the virus is the “efficient proximate” cause of the loss suffered, Birotte found. “Several courts within this district have held that similar Pollution Exclusion provisions bar coverage even if claimants can show they suffered ‘physical loss or damage to’ their premises,” the order says.
The agency did not have an opportunity to settle their claims because it did not identify any additional allegations that they could include in an amendment to save the lawsuit, “especially considering the binding precedent that rejects their claims.”
There have been 73 lawsuits filed by companies in the sports and live arts industry, according to the COVID-19 insurance litigation tracker.
CAA declined to comment. Affiliated and its attorneys did not respond to requests for comment.