Confronting COVID-19 Q&A Series: Micah Skidmore, Haynes and Boone, LLP

Micah Skidmore, Partner at Haynes and Boone, LLP, represents companies in significant insurance coverage disputes. Below, he discusses whether corporate insurance policyholders can successfully claim losses due to the current pandemic.

This Q&A is part of an ongoing series of DRC interviews with representatives from our member organizations about how they are facing the COVID-19 pandemic.

Q: Is a COVID-19 business interruption claim legally viable to commercial policy holders?

A: By one estimate, business interruption losses for domestic small businesses could range between $255 billion and $431 billion per month. Given the cash at stake, the insurance industry has aggressively campaigned against coverage for so-called coronavirus claims — denying that businesses have sustained the requisite “physical loss or damage” to trigger coverage. But the notion that companies denied access to employees, vendors, supplies and, most importantly, consumers and clients, have not suffered a “physical loss” is simply not true. There is ample legal precedent supporting such claims, and abundant factual evidence that prevailing state and local lockdown and stay-at-home orders have rendered insured business premises and equipment unusable and “physically lost” for purposes of most commercial property policies.

Q: What legal precedent is there for successful claims in prior and comparable disasters?

A: There is precedent for the notion that social anxiety over public health can create “physical loss” for the purposes of commercial property coverage. This even applies to property that has sustained no physical injury or damage.

For example, following Hurricane Katrina, property that was otherwise undamaged was claimed as “lost” because of the “Katrina Effect.” That term describes the perception of consumers that any property in New Orleans had been damaged or impaired from the hurricane. In one case, a coffee producer prevailed in federal court in a suit against its insurance provider, when the coffee company filed a claim to be reimbursed after coffee buyers wouldn’t pay the market rate for coffee that was stored in warehouses in areas impacted by Hurricane Katrina. This was the case even though the coffee was scientifically shown to be undamaged by the hurricane.

In a similar way, the “Corona Effect” — the perception that public places and businesses are unsafe —constitutes a compensable “physical loss” under most commercial property policies.

Q: Are there any commercial insurance cases pending involving COVID-19?

A:  Dozens of cases have been filed in venues across the country by corporate insureds seeking to recover the same thing — millions of dollars in lost revenue and extra expense incurred as the current public health crisis has denied businesses their employees, essential supplies, and consumers.

In one pending case, Certain Underwriters at Lloyds, London, (Underwriters) have recently moved to dismiss a policyholder’s claim for business interruption loss in litigation pending in federal district court in Florida. Underwriters’ dismissal brief argues primarily against the policyholder’s allegations that its restaurant/bar sustained “physical loss of or damage” to insured property.