Hundreds of cases have been decided in favor of insurers in the last year, supporting the carriers' rejections of "business interruption" insurance claims. Many of those rulings have involved policies with virus-specific exclusions, which can make cases easier for judges to decide.
However, in a case without the virus-specific exclusion, a jury in federal court in Kansas City, Mo., heard a restaurateur square off against a unit of Cincinnati Financial Corp. last month. According to a Covid-19 litigation-tracking effort at the University of Pennsylvania Carey Law School, it was the first coverage dispute to reach jurors out of more than 1,800 Covid-19 lawsuits filed so far.
While Cincinnati Financial still prevailed, the trial suggests that policyholders' cases may be entering a new phase in which they survive early motions to dismiss and receive a more thorough hearing than they have in the past.
The plaintiffs in this new wave are expected to include some large companies and organizations, such as Major League Baseball, as opposed to the local restaurants and other small businesses that have dominated litigation thus far. And, in many cases, these large clients are represented by law firms with extensive experience in insurance-coverage disputes, potentially setting the stage for some protracted, high-stakes legal battles.
According to Tom Baker, a Penn law-school professor who oversees the litigation-tracking project, large companies frequently have tailored policies that do not always include the boilerplate virus-specific exclusion that is common in policies sold to smaller businesses.
The lawsuit filed by Major League Baseball, its 30 clubs, and affiliated entities claims that the league, its 30 clubs, and affiliated entities lost billions of dollars when revenue from ticket sales, concessions, parking, and in-ballpark merchandise sales, among other sources, plummeted. They claim to have "top flight," "all risks" policies in place, with business-interruption proceeds due.
According to Penn data, law firms are increasing their filings to counter the arguments made by insurers in winning 637 motions to dismiss or for summary judgment, compared to 72 policyholder wins.
"We're seeing more detailed allegations," Mr. Baker noted.
Lawyers in the insurance industry say they are confident they will continue to win. Given that business interruption is a subset of property insurance, they argue that policy language requires "direct physical loss or damage" to the insured property, such as from a fire, for a claim to be covered.
"In the vast majority of cases, insurers did not price policies to include business interruption losses due to pandemics, and policyholders did not pay for it," said Claire Howard, general counsel for the American Property Casualty Insurance Association.
In recent weeks, four federal appellate courts have backed up a half-dozen of the early judicial rulings. This week, a California appellate court handed another significant victory to insurers. The panel of judges concluded that the plaintiff, a California hotelier, lost business due to government shutdowns rather than virus damage on the property.
Last month's federal-court hearing in Roanoke, Va., provided an example of the litigation's new face. There, a lawyer from a policyholder law firm argued against an insurer's motion to dismiss a lawsuit filed by Carilion Clinic, a large Virginia healthcare system.
The lawyer emphasized the importance of continuing proceedings to delve into the science of how Covid-19 may cause property damage. Carilion claims it lost money because elective procedures were not performed. The standard virus-specific exclusion was missing from the policy.
One of Carilion's lawyers, Scott Greenspan of Pillsbury Winthrop Shaw Pittman, told the judge that the research backs up his side's contention that Covid-19 alters the content of the air, making it hazardous and causing the necessary property damage. He cited previous court decisions in favor of policyholders involving ammonia leaks, asbestos fibers, methamphetamine odor, and even cat-urine odor.
A lawyer for a unit of Zurich Insurance Group AG, Gabriela Richeimer, told the judge that such rulings involved property that was "completely uninhabitable," which was not the case with Carilion's facilities.
The decision is still pending.
In the Missouri case, an epidemiologist for KC Hopps Ltd. used data on the virus's spread in the Kansas City area to argue that the virus was most likely present inside the company's bars and restaurants, contaminating them. The insurer's expert countered that the epidemiologist had not specifically tested the premises.
The insurer's lawyers cited a "ordinance or law" exclusion, claiming that losses resulting from government-ordered shutdowns were not covered.
The verdict form provided no information about the jury's reasoning for siding with Cincinnati.
Both parties refused to comment on the case.
The Covid-19 business-interruption lawsuits are shaping up to be one of the most significant battles the insurance industry has ever fought with policyholders. Mr. Baker advised policyholder lawyers that "if you get to a jury, you won't necessarily win."