On Wednesday, a federal judge in the U.S. District Court for the Western District of Missouri decided that a group of hair salons and restaurants can sue their insurer for business interruption losses caused by the coronavirus pandemic, which they say caused a "direct physical loss" to their premises. The case is Studio 417 Inc. et al v. Cincinnati Insurance Co., U.S. District Court, Western District of Missouri, No. 20-03127.
Studio 417 paid premiums to The Cincinnati Insurance Company (Cincinnati) for a policy that included coverage for potential business losses due to a variety of possible causes. The suit indicates that Cincinnati violated the insurance contract when it refused to reimburse the salons for lost business income during the time when the state's stay at home orders were in effect. Studio 417 also argued that no virus exclusion existed in the insurance contract, so Cincinnati could not use that exemption.
Although no ruling on the merits of this case has yet been handed down, Cincinnati's bid to dismiss the case was rejected by the court. U.S. District Court Judge Stephen Bough ruled that business income losses may be covered under standard property and casualty policies.
The judge, in his opinion, stated that the presence of COVID-19 was not a "benign condition," and that the plaintiff's allegations that COVID particles were a "physical substance" that attached to and damaged their property and rendered them unsafe and unstable were credible enough to allow the suit to proceed.
Editors Note: This decision seems to be the first known victory for policyholders in suing their insurers for improperly denying claims related to losses caused by the shutdowns due to COVID-19. Insurers across the country have thus far taken a rigid stance that property policies do not cover COVID-19 related losses, on the basis that without the virus actually being present on insured property, there is no "physical loss or damage" to that property. For now, this decision serves as persuasive authority supporting insureds efforts to secure business interruption coverage for loss of business income.