For several weeks we have seen straightforward declaratory judgment actions filed by policyholders seeking coverage for COVID-19 business interruption-type losses.  As time went on, new cases were filed by policyholders alleging bad faith and violations of claims handling and other consumer statutes along with the request for declaratory relief.  Those cases were followed by putative class actions filed against insurance companies asking for similar relief for themselves and others.  Just recently, a petition was filed by policyholders with the federal multi-district panel to bring all COVID-19 business interruption actions before a single judge the Eastern District of Pennsylvania.  This is all happening with the backdrop of state and federal legislative efforts to address business interruption coverage, some of which would, if enacted, cause severe disruption to the insurance industry and very possibility numerous insolvencies.  Now the next shoe has dropped.

On April 20, 2020, the tables were turned and a declaratory judgment action was brought against a policyholder seeking a declaration that the insurance company’s policies do not cover the policyholder’s claims for business interruption losses.  In Travelers Casualty Insurance Co. of America v. Geragos & Geragos, a Professional Corp., No. 20-cv-03619 (C.D. Ca.), the insurer issued two business owners insurance policies to a law firm.  As set forth in the complaint, the policies’ Business Income coverage part provided that the insurer would pay for the actual loss of Business Income sustained due to the necessary suspension of the firm’s operations during the period of restoration and that the suspension must be caused by direct physical loss of or damage to property at the described premises.  Additionally, the loss or damage must be caused by a covered cause of loss.  The civil authority provision also required direct physical loss or damage.

The policies also defined covered causes of loss as risks of direct physical loss unless the loss is limited or excluded.  The policies contained an exclusion entitled Exclusion of Loss Due to Virus or Bacteria, precluding coverage for loss or damage caused by or resulting from any virus that induces or is capable of inducing physical distress, illness or disease.  Additionally, the complaint cites an ordinance or law exclusion, the pollution exclusion (for contamination by other than “pollutants”) and a delay or loss of use or loss of market exclusion.

The complaint alleges that there is no coverage for the losses claimed by reason of these provisions, including that pandemic is not a Covered Cause of Loss and that the presence of COVID-19 on surfaces would not cause physical damage to that surface.  The complaint also invokes the exclusions as further bases for a declaration of no coverage.  While there certainly has been plenty of insurance industry commentary on coverage of business interruption-type claims because of COVID-19 in the media, this is the first time that the industry has been heard from in the courthouse.  No doubt, it will not be the last time.

Procedural maneuvers will follow, given that there are competing actions between the same parties over the same coverage issue, but this straightforward complaint demonstrates how courts must look at the specific policy language before the court and construe that language based on the clear meaning of the words in the policy.  Importantly, the complaint recognizes the impact on COVID-19 on all businesses, but sets forth a truth that cannot be refuted:  “But these challenging and unfortunate circumstances do not create insurance coverage for losses that fall outside the term’s of a policyholder’s insurance contract.”

Hopefully, the state and federal legislators recognize this truth as well, otherwise the fight over COVID-19 business interruption coverage will go on for a very long time.