Ongoing Uncertainty Surrounding California Law on Insurance Coverage for COVID-19 Business Interruption

Nearly three years have passed since the start of the COVID-19 pandemic, and courts are still determining whether or not pandemic-related business interruptions are considered an insurable event in California.

Businesses of all types have filed lawsuits against their insurance companies to try and recoup business losses resulting from pandemic-related shutdowns. The results have so far been a mixed bag, and the 9th U.S. Circuit Court of Appeals recently asked the California Supreme Court to clarify the law around this issue.

In many cases, courts have ruled that losses must be the result of “direct physical damage or loss,” which is difficult to provide with an airborne virus. However, Amy’s Kitchen, a Petaluma-based business, was given the green light to continue to pursue claims against its insurance company for damages and losses related to COVID-19.

John’s Grill in San Francisco is believed to be the first settlement in a case of this kind, recently settling with Hartford Financial Services Group for an undisclosed amount. The case went to the appeals court, which asked for more legal arguments from both sides. Ultimately, the parties decided to settle.

With a large number of similar cases being litigated at the moment, this issue raises an important question for the courts over whether or not a communicable disease can cause property damage. While many policies include coverage for carbon monoxide, odors, and more, a consensus around pandemics and other public health crisis situations is needed.

Several cases have already moved to appeals courts after superior courts dismissed the case. As these cases work their way through the system, it will be critical to see how pandemic-related claims are handled between businesses and their insurance companies. The last several years have forced all of us to grapple with unforeseen events, and the legal system is no exception.

As courts zero in on this central issue of whether or not the definition of physical loss or damage should evolve, it will have a cascading effect on the many cases working their way through the courts today.