North Carolina Court Ruling Challenges Prevailing COVID-19 Business Interruption Insurance Claims

North Carolina Court's Unusual Decision

In a surprising turn of events, a North Carolina court has ruled that Cincinnati Insurance Co. must compensate 16 restaurants for business income (interruption) losses due to government-ordered COVID-19 shutdowns. This decision stands in stark contrast to the majority of similar cases, where judges have consistently ruled in favor of insurance companies. The central argument in these cases has been that coverage depends on the policyholder suffering a 'direct physical loss,' as specified in the insurance policies.

The Legal Battle Over Policy Language

Sean Kevelighan, CEO of Triple-I, explains that 'Business income (interruption) policies generally reimburse a business owner for lost profits and continuing fixed expenses when its facilities are closed due to direct physical damage from a covered loss, such as a fire, a riot, or a windstorm.' Insurers have been prevailing nationwide in nearly all of the litigated COVID-19 BI lawsuits because, as North Carolina's Insurance Commissioner has noted, 'Standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of the potential losses.' Michael Menapace, a professor of insurance law at Quinnipiac University School of Law and a Triple-I Non-Resident Scholar, adds that 'The threshold issue will be whether the insureds can prove their business losses are caused by 'physical damage to property.'

Looking Ahead: Appeal and Broader Implications

Cincinnati Insurance has announced its intention to appeal the ruling. This case could set a precedent, potentially influencing future rulings on COVID-19 business interruption claims. According to recent data, over 800 COVID-19-related lawsuits regarding business interruption coverage are currently making their way through U.S. courts. The outcome of this case could significantly impact the landscape of business interruption insurance claims, especially in the context of pandemics.

For business owners, it is crucial to review their insurance policies carefully and understand the specific language regarding coverage for business interruptions. Consulting with legal experts can provide clarity and ensure that claims are filed correctly and promptly.