The coronavirus pandemic of 2020 hammered thousands of businesses in the U.S. and around the world. Many were forced by government order to close or reduce their operations in an attempt to slow the virus’s spread. Seeking a lifeline, businesses looked for relief from their business income insurance and their insurance agencies.
One such business was a Philadelphia law firm. The firm had purchased commercial property insurance (most likely a businessowners policy) sometime before 2019 from a major insurer. One of the country’s largest insurance brokerages acted as the insurer’s agent for the sale.
According to the court’s opinion, the policy provided, among other things, these coverages as titled in the insurer’s policy form:
● Lost Business Income & Extra Expense
● Civil Authority
● Limited Fungi, Bacteria, or Virus with a $50,000 limit
As concern about the virus spread in March 2020, multiple government orders required non-life sustaining businesses to close. Accordingly, the law firm shuttered its office and made a claim for the $50,000 limit under the Limited Fungi, Bacteria, or Virus coverage. The insurer took one day to investigate the claim, then denied all coverage because the policy contained a virus exclusion.
The virus exclusion stated that the insurer “will not pay for loss or damage caused directly or indirectly by . . . (the) [p]resence, growth, proliferation, spread or any activity of `fungi’, wet rot, dry rot, bacteria or virus.” It applied “regardless of any other cause or event that contributes concurrently or in any sequence to the loss” and “whether or not the loss event results in widespread damage or affects a substantial area.”
The firm sued the insurer and the agency for breach of contract, a declaration that coverage was owed, and an injunction against further claim denials related to the loss. They sought $50,000 for each of the six counts (three against both the insurer and agent.) After some arguing about which court should hear the case, the insurer and agent asked the court to dismiss the suit.
The judge held that the virus exclusion was unambiguous and binding on the law firm. He noted that the exclusion contained two exemptions:
● When fungi, wet or dry rot, bacteria or virus results from fire or lightning; or
● To the extent that the Limited Fungi, Wet Rot, Dry Rot, Bacteria and Virus Coverage applied to loss or damage caused by other than fire or lightning
The virus did not result from either fire or lightning. Further, he wrote that the Limited Fungi, Bacteria, or Virus coverage did not apply. “The Policy makes clear that (the coverage) ‘only applies when the `fungi’, wet or dry rot, bacteria or virus is the result of: (1) A `specified cause of loss’ other than fire or lightning’ or ‘(2) Equipment Breakdown Accident.’” The policy defined “specified cause of loss” as including 14 causes; virus was not among them. Therefore, the coverage did not apply.
Lastly, he wrote that the virus exclusion applied to the Civil Authority coverage because the exclusion applied “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Accordingly, he dismissed the case against both the insurer and the agency.
Probably no insurance agency saw a once-in-a-century pandemic in its crystal ball for 2020. There was little this agency could have done to prevent this lawsuit. There will be other cases like this one. Businesses have suffered tremendous financial losses and are seeking any plausible sources of recovery. The best thing agencies can do is to explain policy terms and conditions, including virus exclusions, to their clients before any losses occur.
