The Supreme Courts of Washington and South Carolina have rejected business interruption coverage for Covid-19 related lawsuits, as well as the 7th Circuit U.S. Court of Appeals. In Hill and Stout, PLLC v. Mutual of Eunumclaw Insurance Co., 515 P.3d 525 (Wash. 2022), the insured alleged that its dental practice lost the ability to use its business premises for non-emergency care during the Covid-19 pandemic. The Court found that the loss of use did not qualify as a “physical” loss within the meaning of the BI coverage. Even if the dental practice could have shown such a physical loss, the Court nevertheless observed that the policy’s virus exclusion would have precluded coverage as a matter of law.
In Sullivan Management, LLC v. Fireman’s Fund Insurance Company, 879 S.E.2d 742 (S.C. August 10, 2022), the South Carolina Supreme Court rejected arguments that neither the presence of the Corona virus nor a government order prohibiting indoor dining constituted “direct physical loss or damage” which was necessary to trigger BI coverage under a restaurant commercial property insurance policy. While acknowledging that the term “damage” connoted something less than destruction, the Court held that the mere presence of the Corona virus did not constitute “damage” because “it does not alter the appearance, shape, color, structure, or other material dimension of the property.” Turning to the physical alteration requirement in the policy’s definition of “period of restoration,” the Court found that the policy’s requirement that the property be “repaired, rebuilt, or replaced” suggested that the policy contemplated coverage only if there was a physical alteration to the property.
In Circle Block Partners v. Fireman’s Fund Insurance Company, 44 F.4th 1014 (7th Cir. 2022), involving Indiana law, the Court found that the presence of the Covid-19 virus on a hotel’s interior surfaces did not cause the type of physical alteration of the premises required to trigger coverage. The Court rejected the argument that the mere presence of a virus on a hotel’s interior surface areas was a physical alteration of the internal physical areas. The Court concluded that no reasonable policyholder would take the view that the mere presence of “material matter” on the surface of a building represented a physical alteration.