The Wave of Insurance Coverage Litigation Over COVID-19 Business Interruption Losses Is Only Just Beginning

March 30, 2020

The prospect of policyholders filing lawsuits against their insurers seeking to recover coronavirus-related business losses was inevitable, and certain policyholders have wasted no time in doing so. Such lawsuits have now been filed in three states -- Louisiana, Oklahoma and most recently California – before the insurers had even officially denied coverage.

The latest lawsuit was filed on March 25, 2020 in California state court by Thomas Keller, the acclaimed chef and owner of several high-end restaurants (including New York’s Per Se and The French Laundry) against his business interruption insurer, The Hartford Fire Insurance Company. The suit states that Keller had to furlough 300 employees after shutting down two of his Napa County restaurants (The French Laundry and Bouchon Bistro) because of an order issued by the county’s public health officer on March 18, 2020 allowing only take-out and delivery service to try to prevent the spread of COVID-19.  Keller’s company asks the court to declare that the order constitutes a prohibition of access to the restaurants, thus triggering civil authority coverage under the policy. The complaint alleges that The Hartford Fire Insurance Company's policy issued to the restaurants does not contain an exclusion for a viral pandemic, as many other insurance policies do.

The Keller lawsuit is the third of its kind filed in the last two weeks. The first lawsuit over COVID-19 business interruption losses was filed on March 16, 2020 in Louisiana state court by the owners of the Oceana Grill restaurant in New Orleans’ French Quarter against Lloyd’s of London. That lawsuit resulted from orders issued by Louisiana’s Governor and New Orleans’ Mayor restricting the size of public gatherings and limiting restaurant capacity. Like Keller’s lawsuit, Oceana Grill alleged that its policy does not contain a virus or pandemic exclusion, and also sought a declaration that the policy covers lost business income (a) for civil authority shutdown of restaurants, and (b) if the virus had contaminated the restaurant. In an attempt to satisfy the policy’s “direct physical loss” requirement, the restaurant alleged that the virus “physically infests and stays on the surfaces of objects or materials” for weeks, and that the contamination would constitute “a direct physical loss needing remediation to clean the surfaces of the establishment.”

One week later, on March 24, 2020, two Native American tribes (The Choctaw and Chickasaw Nations) separately sued a group of insurers in Oklahoma state court demanding payment of business interruption claims for the closure of their Oklahoma casinos due to the COVID-19 pandemic. The Governor had ordered all non-essential businesses in Oklahoma to close and instructed the elderly and people with pre-existing medical conditions to stay home. The Nations alleged that their properties sustained physical damage as a result of COVID-19 and could not be used for their intended purposes, and sought an order declaring that the policies cover the Nations’ losses and expenses related to COVID-19. 

Civil authority coverage in a business interruption policy generally applies when access to the insured’s property is prohibited due to a governmental order issued as a result of direct physical loss or damage to property adjacent to or nearby the insured’s property.

The central issue in these lawsuits will likely be whether the COVID-19 virus constitutes “direct physical loss or damage” to property, which is typically a requisite for coverage.  That term is usually not defined, and courts across the country have issued differing interpretations. 

Some courts require tangible changes resulting in visible damage to the property. Those courts may find that the virus -- which does not cause any visible or structural damage to property -- does not qualify as “direct physical loss or damage.” 

However, courts in other jurisdictions have held that the presence of harmful substances such as asbestos, fumes or odors in quantities sufficient to render a property uninhabitable or unusable, may constitute the required “direct physical loss or damage.” Courts have not yet interpreted this issue in the context of a virus.

Another important legal issue in these lawsuits will be, even if COVID-19 qualifies as “direct physical loss or damage” to property, was the applicable civil authority order prohibiting access to the insured’s property issued as a result of that property damage, or rather was it issued to protect public health? Depending on the particular policy language, policyholders may need to demonstrate the former to trigger civil authority coverage.

Given the unprecedented nature of these claims, the various types of civil authority orders issued by different cities/states, and insurance policies containing differences in policy language, it remains to be seen how courts will interpret these coverage issues. 

What is clear is that there will be a wave of similar lawsuits filed throughout the country in the coming weeks and months. It is also likely that courts in different states may arrive at different results depending on that state’s prior court decisions, and the particular facts and policy language at issue.


Herrick’s Insurance Group is experienced in reviewing and analyzing such policies and coverages. For more information on this and other insurance matters, please contact:

Alan R. Lyons at [email protected] or +1 212.592.1539

© 2020 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.