By Jim Sammon, Brett Krantz & Alexis Preskar

Business InterruptionWhile the politicians in D.C. continue to argue over the size and timing of the next round of stimulus, American businesses are bracing for the continued onslaught of the COVID-19 pandemic and the potential changes that a new administration could bring.

At the same time, small and large insurance coverage individual and class actions work their way through both state and federal courts throughout the country. The main question to be answered in each case: whether the economic Armageddon brought on by COVID-19 (and the state and federal governments’ requirements and responses) triggers the business interruption coverage in an insurance policy. For business owners, having insurance coverage for their business income is literally a matter of life and death.

As we explained previously, the determination of coverage generally will rest on two policy language terms: (i) whether the business loss occurring as a result of the governmental shut-downs put into place beginning in mid-March 2020 have caused a “direct physical loss” on the property, and (ii) whether the policy contains a virus exclusion.

On Oct. 9, 2020, a North Carolina state court ruled against the Cincinnati Insurance Company and in favor of a group of small restaurant owners. The court held that shutdown orders attempting to contain the virus caused a “physical loss” so that coverage should be awarded to the business owners. Showing the wordsmanship required with these cases, the North Carolina judge found that the policies’ language covering “accidental physical loss or accidental physical damage” provided ambiguity in the policy. Cincinnati argued that the policy required physical alteration for coverage to apply. The judge found the use of the conjunction “or” required the Court to give meaning to both terms. Having found ambiguity, the court was mandated to construe that ambiguity in favor of the policyholder. The court also found that there was no virus exclusion in the restaurants’ policies, and no other exclusions potentially applied.

This victory for business owners is both an outlier, and on appeal.

In early November, a Mississippi federal judge dismissed a putative class action against Travelers Insurance. The court found that the “direct physical loss” policy language required either tangible damage or “permanent” dispossession of the property. The court did not agree with plaintiffs’ argument that the governmental orders resulted in such permanent dispossession.

The Mississippi order was followed the same week by a novel lawsuit brought against Zurich Insurance Co. by an Atlanta restaurant group. The plaintiff alleges that its Zurich policies afford coverage for business losses attributable to microorganisms – such as COVID-19. The lawsuit alleges the COVID “virus permeated each premises” and rendered items of physical property and business premises unsafe, requiring the premises and contents to be altered or changed – such as direct physical loss of seating capacity. Interestingly, the restaurant group alleges that Zurich “specifically excluded losses caused by microorganisms in its Real and Personal Property Coverage form,” but then included it in the Additional Coverages and Business income forms. The plaintiff alleges this ambiguity within the Zurich policy “would render the coverage illusory and contrary to the reasonable expectation of any insured.”

It is still too early to fully understand where the myriad of lawsuits will ultimately pan out. At this juncture, more than two-thirds of court opinions have dismissed business interruption claims against the insurance industry. Law 360 reports that there have been approximately 33 business interruption cases dismissed in favor of the carriers, while approximately 15 cases have made it past the motion to dismiss phase. A handful of cases continue to be litigated throughout Ohio and other states. With no relief in sight from Washington D.C., the wordsmanship of the litigants’ counsel may be their only hope.

KJK will continue to track the business interruption claims and decisions by courts throughout the country. If you have any questions about coverage under your policy, contact Brett Krantz at or 216.736.7238, Jim Sammon at or 216.736.7235, or Alexis Preskar at or 614.427.5748, or reach out to any of our Litigation professionals.