Earlier this month, a North Carolina trial court judge handed down a monumental opinion[i] that may open the door for businesses to recover losses incurred from shutdowns due to the COVID-19 pandemic. The case involves a group of 16 restaurants who purchased “business interruption” insurance policies. The policies state that in order to recover, businesses must incur a "direct physical loss." The defendant, The Cincinnati Insurance Co., denied the restaurants' claims, stating that there needed to be a physical alteration of the insureds' properties in order to prevail under the policy.
The court did not agree. The judge relied on policy language stating that a "direct physical loss" includes an "inability to utilize . . . something in the real, material or bodily world, resulting from a given cause." The court found this definition to be ambiguous, and thus under North Carolina law, had to interpret the policy in favor of the insured. The court said that interpreting the policy to require a physical alteration rendered other provisions of the policy meaningless. “In giving the ambiguous terms the reasonable definition which favors coverage, the phrase ‘direct physical loss’ includes the loss of use or access to covered property even where that property has not been structurally altered,” the judge wrote. The court found no virus exclusion in the policies and found for the restaurants.
This case is the first of its kind in the United States; allowing a COVID-19 claim to prevail under a business interruption policy. While this seems to open the floodgates for other businesses suffering similar losses, it is important to note that the grant of coverage was dependent on the particular policy language and North Carolina law and, of course, is still subject to vigorous appeal.
If you experienced losses during COVID-19 and want to discuss your options under your policy, please contact Jason Byrne, Brianna Richardson or your Warner insurance attorney.
[i]North State Deli LLC et al. v. The Cincinnati Insurance Co. et al.; 20-CVS-02569, Superior Court for the County of Durham
