Does Business Insurance Cover Interruptions Caused by COVID-19? SJC May Decide.

Verveine Corporation operate three restaurants, The Coppa, Toro, and Little Donkey,  located in Boston and Cambridge and share common owners. For many years these businesses were covered by insurance. Like many restaurants, the plaintiff’s businesses were successful until March of 2020 when they suffered losses as a result of the pandemic and government shutdown that rendered their insured properties unusable and inaccessible. Faced with this issue, the plaintiffs submitted insurance claims for loss of business income. However, their request was quickly rejected by a form letter. In June of 2020, the plaintiffs filed suit against Strathmore, alleging breach of contract for its denial of coverage and seeking declaratory judgment for enforcement of the insurance policies in the case of Verveine Corp. v. Strathmore.

The policy provided Business Income and Extra Expense Coverage, which covered, loss of business income due to necessary suspension of business operations during the period of restoration. The suspension must be caused by direct physical loss of or damage to property.  One of the restaurants, the Little Donkey, even contained an “Exclusion of Loss Due to Virus or Bacteria” which states that the policy  will not cover “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”

However, the other two restaurants operated by the plaintiffs, The Coppa and Toro Policy, did  not contain any such exclusion or limitation for loss or damage caused by viruses.

The district the court held that this phrase “unambiguously requires that the physical state of the property in question must be altered in order for there to be coverage,” remarking that its decision was “in line with the majority of recent cases across the country that have tackled this exact issue arising from the COVID-19 pandemic.

However, the plaintiffs alleged that the phrase is left undefined by the policy and is ambiguous because it is susceptible to more than one meaning. Where a law can be reasonably interpreted in favor of coverage, the law requires that it be interpreted in this way.

The plaintiffs allege that they lost access and use of their property due to a virus that threatened the health and safety of occupants if the property were put to normal use. This could constitute “physical loss of” or “damage to” property or both. Massachusetts law has interpreted “physical loss of or damage to” property to apply to situations where a property has become uninhabitable or unusable due to a physical danger at or around the property.

Many insurance companies have been hesitant to cover COVID-19 related claims because of how widespread these concerns are. However, the Massachusetts precedent is clear, and interpretation of the clause favors the plaintiff. Hopefully the Massachusetts Supreme Judicial Court reverses finds for the plaintiffs.

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