Lloyd's verdict shows insurers’ mettle in US COVID suits

February’s verdict for Lloyd's in the first COVID-19 business interruption lawsuit to go to trial highlights insurers' strength in such cases in the US, according to a new report published by Bloomberg Intelligence.

The suit against Lloyd's was in the minority in alleging that coronavirus was present on premises, and the policy at issue lacked a virus exclusion. Nonetheless, the court ruled for Lloyd's, denying coverage. Though no reason was given, BI believes the verdict suggests that the court found that neither the presence of the virus nor government shutdown orders constituted physical loss for purposes of coverage.

“The number of court rulings dismissing COVID-19 business interruption suits far exceeds those allowing cases to proceed, a trend we expect to continue in the US. Courts are throwing out cases primarily because the suits don't sufficiently plead there was a physical loss of property or physical damage, or because the policies at issue contain virus exclusions,” said BI.

“The few cases that survived mostly did so because the coronavirus allegedly was on the premises and there was no virus exclusion. An Ohio federal court and a North Carolina state court are the first to require coverage, holding that shutdown orders constitute a physical loss. Reversals on appeal are possible.”

BI adds that insurer defences against COVID-19 business-interruption suits are strong, but have cracks. Most rulings have rejected cases because they don't claim the virus was on-site, undermining physical loss requirements.

“Even if the coronavirus was present, as alleged in New Orleans, Missouri and some other cases that survived, it may not constitute physical loss or be found to have caused extended closings. Still, outcomes will vary by policy and state, with Ohio, North Carolina, Washington and potentially New Jersey rulings outliers for now in treating shutdown orders as triggering physical loss coverage.

“Virus exclusions offer another defence. Notably, Cincinnati Financial policies didn't contain them, and neither did Lloyd's in the New Orleans case. Early estimates put small-business-closing losses at US$255-US$431bn a month.”

BI’s own litigation tracker shows that insurers have won dismissal in over 80% of rulings.

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