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By Chuck Niblick, Ice Miller LLP
The COVID-19 pandemic produced a seismic wave of litigation across multiple sectors, but few areas were as profoundly tested as the property and casualty (P&C) insurance industry. Businesses shuttered by public health orders and grappling with unprecedented financial losses turned to their insurers, only to face widespread claim denials, especially in the context of business interruption coverage.
What followed was a deluge of insurance coverage lawsuits, many of which tested foundational principles of insurance contract interpretation. For attorneys representing policyholders, COVID-19 litigation not only presented novel challenges but also reshaped long-held assumptions about risk allocation, the meaning of “physical loss,” and the limits of bad faith liability.
This article analyzes how COVID-related litigation has impacted P&C claims and identifies strategic considerations for attorneys advocating for policyholders amid the shifting legal terrain.
Business Interruption Claims: A Legal Stress Test
Central to the litigation were BI claims under commercial property policies. Policyholders argued that government-mandated closures constituted “direct physical loss or damage.” Insurers countered that neither virus presence nor shutdown orders caused tangible physical changes to property.
Courts generally sided with insurers, especially when policies included virus exclusions. However, outcomes varied by jurisdiction. California courts occasionally accepted loss of use as “physical loss,” while federal courts in New York and Illinois demanded structural alteration. These cases underscored the importance of policy language and revealed inconsistencies in pre-2020 virus exclusions.
Other P&C Lines Under Pressure
COVID-19 also impacted other insurance lines:
• General Liability: Lawsuits alleged negligence in preventing virus spread.
• Workers’ Compensation: Claims surged, especially in states with presumptions of exposure for frontline workers.
• Event Cancellation & Travel Insurance: Disputes arose over disease exclusions and force majeure clauses.
These developments prompted a reevaluation of how insurers handle systemic, non-catastrophic risks.
Strategic Considerations for Policyholder Attorneys
Policy Language Analysis
Understanding policy definitions—especially “physical loss” and virus exclusions—is crucial. Where ambiguity exists, doctrines like contra proferentem and reasonable expectations of the insured can be leveraged, particularly in state courts.
Jurisdictional Strategy
Jurisdiction often determines outcomes. Attorneys should:
• Track favorable precedents in state vs. federal courts.
• Strategically remove or remand cases.
• Use comparative case law to support arguments.
• Monitor appellate decisions for emerging clarity.
Alternative Coverage Theories
When physical damage is hard to prove, attorneys may argue:
• Loss of use or habitability triggers coverage.
• Government shutdowns activate civil authority clauses.
These theories require strong factual support but have found traction in some courts.
Expert Testimony
Experts play a key role:
• Industrial Hygienists: Argue that airborne contamination alters environments.
• Economists & Accountants: Quantify losses and challenge causation defenses.
• Industry Experts: Interpret policy terms based on standard practices.
Bad Faith and Regulatory Leverage
Bad faith claims can pressure insurers, especially when there’s evidence of pattern denials or inadequate investigations. Regulatory complaints, while not always yielding direct recovery, can strengthen litigation narratives and negotiation positions.
Looking Ahead: Evolving Legal and Industry Landscapes
Appellate Clarification
As cases move beyond early dismissal stages, appellate courts are shaping clearer precedents on:
• Definitions of “physical loss.”
• Validity and scope of virus exclusions.
• Standards for bad faith in pandemic-related denials.
Policy Drafting Changes
Insurers are revising policies—tightening exclusions, redefining terms, and adding communicable disease riders. Attorneys should advise clients to scrutinize renewals and negotiate terms, especially in high-risk industries.
Class Actions and MDLs
Federal multidistrict litigation (MDL) has streamlined COVID coverage disputes but introduced procedural limits. Individual actions may be preferable when unique facts or favorable state laws apply.
Conclusion
COVID-19 was a transformative event for the P&C insurance sector. For insurance recovery attorneys, it emphasized the importance of contract interpretation, venue selection, and evidentiary rigor. While many disputes are winding down, their legal impact will persist. Attorneys who adapt to evolving jurisprudence and advocate strategically will be best positioned to secure favorable outcomes in future coverage battles.•
Chuck Niblick is an associate at Ice Miller LLP. His practice focuses on insurance coverage and recovery, asbestos litigation, commercial litigation, and products liability as an attorney in Ice Miller’s Litigation Group. He has represented individuals, contractors, products manufacturers, and premises owners from the beginning of litigation through trial preparation and settlement in a variety of tort claims. He has analyzed insurance policies to advise on coverage in a number of matters. Niblick is an active member of IndyBar. He’s the Immediate Past Chair of the Young Lawyers Division, is a graduate of Bar Leader Class XIX, serves on the IndyBar Foundation Board of Directors, and is an IndyBar Foundation Distinguished Fellow.
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