ATTORNEY ON LAW
COVID-19 and the Failure of Business Interruption Insurance The problem with the virus is it affected people, not places.
T
Lance Plunkett, J.D., LL.M.
here’s a commercial for a home warranty product where a homeowner’s insurance company representative carefully explains to the insured that while a volcano erupting or a zombie apocalypse would be covered under its policy, the failure of the insured’s home air-conditioning system was not. The insurance representative today would have added that neither is COVID-19 damage covered (zombies, presumably, do not carry the disease being that they are already dead). One of the least appetizing aspects of the COVID-19 pandemic has been the realization that business interruption insurance coverage is virtually useless for this type of catastrophic event. Many questions have come into NYSDA about coverage in general liability insurance policies for business interruptions and the loss of income they engender. Unfortunately, in a classic illustration that no insurance policy should ever be read superficially and taken at face value, it turns out that typical business interruption coverage is for physical harm to a business premises—not to harm caused by a virus like COVID-19. Some policies specifically exclude viruses, but it turns out that such exclusions are not even necessary to block coverage. Even without such language, there has to be an element of physical harm to trigger coverage. Who knew that all business interruptions were not created equal? Insurers, of course. To the alleged rescue came clever lawyers crafting arguments that COVID-19 was a form of physical damage because it could cling to surfaces for substantial periods of time and make surfaces dangerous transmitters of the disease. Surely, the courts would compel insurance coverage in the face of sympathetic plaintiffs and
such an excellent argument from their attorneys. Alas, not so, according to the United States District Court for the Southern District of New York in Social Life Magazine Inc. v. Sentinel Insurance Co., which ruled in favor of the insurer on this issue. However, Judge Valerie E. Caproni granted that the policyholder’s attorney deserved “a gold star for creativity,” but the COVID-19 loss was not covered under the policy issued by the Hartford Financial Services Group, Inc. In the case, the plaintiff’s attorney argued what could be more physically harmful than the death potentially caused by COVID-19. Judge Caproni responded that while this did indeed raise the potential for harm to the plaintiff’s person, it did not result in any harm to the business premises itself that were the subject of the insurance policy coverage. The plaintiff’s attorney has filed an appeal with the United States Court of Appeals for the Second Circuit, possibly hoping for another gold star. “E” for Effort Next to the alleged rescue was the New York State Legislature with several bills to mandate insurers retroactively cover business interruptions caused by COVID-19, even if the insurance policy had expressly excluded such coverage. O frabjous day! Callooh! Callay! Sponsors flocked to these bills to demonstrate their support for the small business owners devastated by COVID-19, knowing, of course, that the bills would never pass and become law. But it was a good show for the public. Why were these bills doomed? For several reasons, and not just the intense lobbying opposition of the insurance industry. The foremost reason was that the United States Constitution
The New York State Dental Journal JUNE/JULY 2020 5 ●
