8th Circuit: Coronavirus Losses Are a “Direct Physical Loss”

In what may be a promising turn of events for people with business interruption insurance, the Eighth Circuit of the United States Court of Appeals has just ruled that losses related to the coronavirus pandemic are a “direct physical loss.” This ruling is important as it signals how other courts may rule when confronted with similar issues, and with many businesses forced to close due to the pandemic, they are looking for any way to stave off their losses. Unsurprisingly, however, insurers who issued these policies are less than pleased at the court’s interpretation of the law.

The effects of the coronavirus pandemic have been felt across the country, and while New York was among one of the hardest hit states early on, many other states are now contending with surges in infection rates. As a result, businesses are being forced to close or limit their operations, resulting in many people losing their businesses and their jobs. While early economic stimulus helped to ease this burden somewhat, business owners have been looking for other ways to cover the hole the coronavirus blew in their revenue streams.

For some business owners, they sought help through business interruption insurance policies, which are meant to cover lost revenue from disruptions in business. However, there is a catch: many of these policies only cover business interruptions caused by “direct physical loss.” In other words, they only cover interruptions where there is direct damage to the business’ property. As a result, many people with business interruption insurance have tried to argue the coronavirus crisis was a kind of physical loss, even if it does not meet the traditional definition of such.

In Studio 417, Inc., et al. v. The Cincinnati Insurance Co., No. 20-cv-03127-SRB (W.D. Mo. Aug. 12, 2020), this ruling by the Eighth Circuit marks the first time a federal court has issued a substantial ruling in favor of business owners, stating that the coronavirus does constitute a direct physical loss. This is based on the rationale that the coronavirus can physically taint workspaces, making them unsuitable for human habitation until they have been cleaned. Those with business interruption insurance policies are pleased with the ruling, while insurers are angrily protesting. After all, there are many businesses that were interrupted by the coronavirus, and this interpretation of the law means they would need to make a lot of payouts they were not counting on making.

If you are a business owner with a business interruption insurance plan, and you want to recover for losses suffered due to the coronavirus pandemic, you should seek out a business law attorney with experience in the field. The business law attorneys at Blodnick, Fazio & Clark are skilled and knowledgeable in the areas of business law and commercial transactions.  With offices conveniently located in Garden City, Nassau County, and Babylon, Suffolk County, the firm provides high-quality legal care at reasonable prices. If you require legal assistance concerning business startups, formation, corporate acquisitions and mergers, corporate restructuring, or another business matter, call (516) 280-7105 or fill out our contact form for a free consultation.

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