Earlier this week, two Alabama businesses sued their insurers for refusing to pay losses related to COVID-19. The first lawsuit, Wagner Shoes v. Auto-Owners Insurance Co., No. 7:20-cv-465 (N.D. Ala. Apr. 6, 2020), was brought by a shoe store in Tuscaloosa. The second suit, Ollie Irene v. Farmers Insurance Exchange, No. 01-CV-2020-901319 (Jefferson County Cir. Court April 7, 2020), was filed by nationally recognized Mountain Brook restaurant, Ollie Irene.
The Wagner Shoes lawsuit follows the model of suits in others states such as Louisiana, California, and Texas. These suits allege the coronavirus is contaminating property—i.e., doorknobs, table tops, etc.—and can persist on these surfaces for days or even weeks. Businesses contend this contamination is “direct physical loss” to their property which should trigger their business interruption coverage. The Complaint did not attach a copy of the policy and did not address the virus exclusion found in most property policies.
Ollie Irene’s suit is different. It expressly disclaims any damage from the coronavirus and instead focuses on the State Health Officer’s civil closure order. The suit alleges the order—not the virus—caused “direct physical loss” to property because the restaurant lost the use of its on-premises dining area. Thus, the policy’s “virus exclusion” is wholly inapplicable. Ollie Irene also acknowledges an exclusion for government actions but says the order falls within an exception to that exclusion.
Does the State’s civil closure order qualify as direct physical loss to property?
The Ollie Irene suit raises two interesting questions that may impact future COVID-19 insurance claims.
- Does the virus exclusion apply when a business is closed because of a civil closure order rather than viral contamination?
- Does the exception for government actions apply?
Balch & Bingham is monitoring both of these cases closely and will report on future developments. Please contact Steven Corhern or Chris Yeidling in Balch & Bingham’s Insurance Coverage Practice Group if you have questions.