Do Insurance Companies Have a Responsibility to Cover Losses Due to COVID-19 in the Absence of a Virus Exclusion?

When COVID-19 struck in early 2020, businesses scrambled to stay afloat as we collectively navigated an unprecedented situation. For many individuals, pandemic-related shutdowns and stay-at-home orders affected their livelihood and the financial stability of their businesses. When some turned to their insurance company for assistance and support, they faced claim denials and uphill battles to leverage the protection that was supposed to cover their losses.


Tarrar Enterprises, Inc., a utility consulting company, faced this exact roadblock. When Contra Costa County ordered Tarrar to close its doors early in the pandemic, Tarrar faced devastating economic hardships. When Tarrar turned to its insurance company for assistance, it was met with a wall of refusal.  The McGonigle law firm sought to right this injustice by filing suit.

How do insurance companies classify COVID-19?

Most insurance policies contain a “total virus exclusion.”  Tarrar’s policy, in contrast, did not.  Thus, Tarrar argued that its policy should provide coverage and that because viruses spread through the air, they are akin to perils like carbon monoxide, asbestos, foul odors, or wildfire smoke. These types of perils have been covered under similar insurance policies, as these issues physically affect the air and the individuals occupying that space.


In the early days of the pandemic, the situation evolved quickly and we did not yet have access to testing, vaccines, and an understanding of how COVID-19 spreads. However, we quickly learned viral aerosols in the air and droplets left on surfaces put individuals in shared spaces at risk of contracting the virus.


The defendant, Associated Indemnity Corp. (AIC), argued that COVID-19 did not have a physical impact on Tarrar’s property and that coverage under the policy was only for business interruption in the event the property was physically lost, damaged, or undergoing repairs/replacements. The defendant’s myopic view of damage extends only to personal property that is broken, torn, dented, or destroyed by COVID-19 or any government restriction.


There are far more dangerous risks to a property than a dent. When coworkers are in close vicinity at their employer’s property, COVID-19 represents a viral, airborne infection that easily spreads from person to person. Just as we wouldn’t expect employees to work in a building permeated by carbon monoxide, we wouldn’t expect them to work on a property with a harmful virus circulating in the air.

How is Civil Authority insurance coverage established?

Tarrar believes its losses should be covered under the AIC policy’s Civil Authority insuring Agreement. Insurers began adding Civil Authority coverage to “all risks” decades ago to expand business interruption coverage to include situations where the property has not sustained damage, but the government prohibits property access because of damage to a nearby property. For example, during the 2021 Caldor Fire, local agencies required businesses in the Lake Tahoe area to close due to unsafe air conditions. The Civil Authority insuring agreement covered profits lost by companies ordered to close because of dangerous air quality indexes.


What’s the common thread? Government officials ordering businesses to close because of unsafe air conditions. While the driver behind the closures differed, the underlying foundation was the same. Tarrar’s economic damages are a direct result of government shutdowns in response to a highly transmissible, dangerous airborne virus.


Further bolstering Tarrar’s position, AIC’s policy does not require physical loss or property damage to occur within a limited radius of the insured property. Under AIC’s coverage, AIC will pay for the actual loss of business income and necessary extra expenses caused by Civil Authority action that prohibits access to the property due to physical loss or damage caused by or resulting from any Covered Cause of Loss.


Tarrar believes that AIC’s refusal to recognize Tarrar’s loss of business income under the Civil Authority policy constitutes both bad faith and a breach of contract.

What’s next for this case?

Tarrar Enterprises, Inc. appealed the Superior Court’s summary dismissal of the Civil Authority claim, placing this case in the Court of Appeal of the State of California, First Appellate District, Division II.  Because of the significance of the coverage issues presented, Reed Smith filed an amicus brief on behalf of the United Policyholders, a respected national non-profit 501(c)(3) organization, in support of coverage.   Oral arguments in this case are scheduled for September 12, 2022.


The outcome of this case holds incredible weight for businesses still trying to receive rightful compensation under their insurance policies. The last several years forced all of us to recalibrate our stance on risks associated with being in close proximity with others. We all made (and continue to make) adjustments based on an ever-shifting pandemic environment, but insurance companies remain stuck in outdated and unfair arguments that fail to address today’s challenges and the realities of the pandemic.

“If not for your kindness and willingness to help me I think that I would have been ruined financially.“

Judy K.

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