Businesses are trying to identify how to survive in the new reality in which they find themselves in the time of the COVID-19 pandemic. Many businesses believed that their business insurance policies would help them survive through this pandemic. However, many businesses are finding that insurance companies are not inclined to deliver upon the services that the businesses thought that they would receive.
Just as recently as August 2020, this very issue was heard in the Superior Court for the District of Columbia. Rose’s 1LLC and a number of other restaurants in the Greater Washington D.C. Metropolitan area brought suit against their insurance company, Erie Insurance Exchange. Rose’s 1’s properties, in the same vein as other businesses around the country, closed and temporarily halted operations in response to government mandates, with the hope of reopening when the laws and mandates permitted.
In the hope of ensuring their businesses’ survival during the mandated shutdowns, these businesses reached out to Erie, but their requests were denied. The Plaintiff restaurants went to Erie for coverage under their “Ultrapack Plus Commercial Property Coverage” insurance policies. Each of their claims received the same response, they were denied. These multiple denials are what prompted this group of businesses to file suit in Court in an attempt to correct this perceived wrong.
Superior Court for the District of Columbia Judge Kelly A. Higashi ultimately ruled in favor of the Erie, the insurance company. Judge Higashi denied the Plaintiffs’ bid to get coverage for business interruptions during the COVID-19 pandemic, and the judge ruled that government shutdown orders do not amount to a “direct physical loss,” which according to the terms of the policies would trigger the policy to be enacted.
Judge Higashi was not convinced by any of the restaurants’ arguments because the business owners failed to demonstrate how the shutdown orders/mandates in amounted to “direct physical loss” to each of these businesses.
Judge Higashi ruled that in order for the policy that Erie sold these businesses to be triggered the “loss” had to directly impact the property. Plaintiffs argued that the shutdown mandates the “direct” reason for the closing and that but for the mandates they would not have closed their businesses. However, the Judge wrote that the orders only directed businesses to take particular actions, but that the shutdown orders did not effectively direct any changes to the businesses’ properties, which is what the policies require. Judge Higashi held that the businesses failed to present any evidence to the Court that the COVID-19 virus could be traced to the inside of any of the insured properties, and the shutdown orders did not have any impact upon the structural integrity of the businesses’ properties.
If your business has such a business interruption policy and you are experiencing difficulties with your insurers, you should contact an attorney. The attorneys at JDKatz, P.C. would be happy to advise you and your business to help you navigate this novel business landscape that the COVID-19 virus has created. We are happy to advise you on a variety of business-related questions.
By Elizabeth J. McInturff