Two years after sweeping lockdowns came into effect to prevent the spread of COVID-19, the case law is: assembly in favor of insurers who were charged with denying claims.
A federal judge in California on Wednesday finally dismissed Creative Artists Agency’s lawsuit against Affiliated FM Insurance for refusing to cover losses related to business closures forced by the virus. Following a long string of precedents, U.S. District Judge Andre Birotte Jr. that “direct physical loss or damage” policies do not cover pandemic-related policy claims.
When local governments began issuing injunctions 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 out, insurers looked at the fine print and denied it en masse. The industry jointly determined that the business interruption policy for lost revenues excluded coverage for pandemic shutdowns, claiming that physical loss or damage to property was required. A legal war broke out: More than 2,300 lawsuits against coverage decisions have been filed, according to a COVID-19 tracker for insurance disputes created by Penn Law professor Tom Baker. Nearly 92 percent, or 792, of the 862 cases considered for dismissal have been dismissed.
The fate of CAA‘s lawsuit, like others, was about whether there was “physical loss” to insured property. The agency claimed its losses were a “direct result of physical loss and damage” based on civil authorities’ shutdown orders. The physical presence of the virus in the air and on surfaces made the property unsuitable for use.
Birotte dismissed the argument and found that CAA did not specifically identify how virus particles caused a “physical change” in its buildings. “For example, an outside force must have acted on the insured property to cause a physical change in the condition of the property,” he wrote.
In Inns of the Sea v. California Mutual Insurance Co., the first case before the California Court of Appeals involving a dispute over COVID-19 coverage, found that Inns also found no direct physical damage to property that caused operations to be suspended, despite allegations that the virus was present on the site. terrain.
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 advanced arguments similar to those of UTA, and the majority of courts have rejected them,” reads an April order from an appeals court rejecting the decision. case confirms. “It is now common knowledge that temporary loss of use of a property as a result of pandemic-related closure orders does not, without further ado, constitute direct physical loss or damage.”
The judge also denied coverage under a provision in CAA’s policy that allegedly covers losses caused by civil orders. The orders were issued to prevent the spread of COVID-19, Birotte found, not as a result of physical damage to property.
However, CAA had a provision in its policy that excluded coverage of “all costs resulting from contamination, including the inability to use or occupy property or any costs to make property safe or suitable for use or occupancy.”
CAA cannot dispute that the civil authority’s shutdown orders were issued in response to COVID-19 and that the virus is the “efficient near” cause of the loss incurred, Birotte found. “Several courts in this district have ruled that similar contagion exclusion provisions preclude coverage even if plaintiffs can demonstrate ‘physical loss or damage to’ their buildings,” the warrant reads.
The agency was not given a chance to establish its claims because it was unable to identify additional charges they could include in an amendment to save the lawsuit, “especially given the binding precedent rejecting their claims.”
According to the COVID-19 insurance dispute tracker, 73 lawsuits have been filed by companies in the live arts and sports industry.
CAA declined to comment. Connected and its attorneys did not respond to requests for comment.