APCIA and NAMIC have filed a joint amicus submission urging the U.S. Court of Appeals for the Ninth Circuit to affirm a California district court's declaration that requiring coverage for COVID-19 business interruption losses would be contrary to the terms of the policies and will financially ruin the insurance industry. The case is 10E LLC v. The Travelers Indemnity Company of Connecticut, No. 2:20-cv-04418-SVW-AS.
In the 36-page amicus curiae brief, the two organizations intended to explain the broader context that the issues presented, in explaining the consequences of potential outcomes, offer additional analytical approaches, and cite additional authority that the Court may not notice, in hopes of saving the insurance industry from a high-level court mandate that business interruption claims need to be paid out.
The brief focuses on a few points of clarification for the Court. First, the brief explains the plain terms of the policy, requiring "direct physical loss of or damage to property" at the insured premises, how they provide coverage for losses caused by covered perils, such as a fire, vandalism or windstorm, but were never intended to cover economic losses that do not stem directly from a physical loss of or damage to property.
Next, the brief goes into how the history and original purpose of commercial property policies supports the decision of the District Court regarding the meaning of "direct physical loss or damage to property."
Third, they bring to the Court an explanation of how imposing a new, retroactive risk of economic losses that are outside of the insurance contract, during a pandemic would harm the state's insurance marketplace by opening the floodgates to claims the policies were never intended to cover. This would also potentially keep insurers from paying out legit insurance claims made on other insurance policies.
Next, the brief provides holdings from courts across the nation that recognize that "physical loss or damage" requires tangible harm to the property, and explains how the loss of use of property does not necessarily constitute "direct physical loss of or damage to property."
Lastly, although the losses fall outside of policy coverage, as explained above, the brief demonstrates that the virus exclusion provides an independent ground for affirming the ruling that no coverage is afforded under the policy.
The brief cites 43 business interruption coverage cases that have been litigated in the last year and a half, since the beginning of the pandemic, discussing a variety of the above arguments.
Editor's Note: This is an important development for the insurance industry. Although most cases have come down on the side of insurers, some have been decided for the policyholders which sets a precedent that could open floodgates of litigation resulting in huge payouts that were not initially contracted for.