Fourth Circuit Denies Business Interruption Claim for Pandemic Related Losses

Takeaways:

• Insured’s COVID-related business loss claim denied due to policy language restricting coverage to physical loss

The 4th Circuit Court of Appeals, interpreting West Virginia law, recently took up an insurance coverage issue that arose from COVID-related shutdowns. Like many others, the insured claimed business-related losses from the closure of two of its locations. As with these other cases, the insurance policy did not cover the claims due to a physical loss requirement in the policies.

In the case, which can be found here, the insured had to close its two locations to comply with state closure orders. After doing so, one location closed permanently and the other reopened. The business then claimed business losses under the property loss and business income loss provisions of its commercial insurance policy. The trial court dismissed the action at the preliminary stage.

Cases like these turn on the precise language of the insurance policy. Here, both loss provisions required “physical loss” or “physical damage” – unambiguous terms that the court had little trouble construing to require some sort of material destruction or alteration. The damage must affect the property in a physical way and prevent its use. Contrary to the business’ arguments, neither the closure order nor the virus prohibited access to the property, nor did the virus cause present or impending material destruction or harm that physically altered the property.

Accordingly, the insured’s claims did not fall within the insuring language of the policy. As noted by the Fourth Circuit, this interpretation is consistent with numerous other courts addressing similar claims and policy provisions.