One of the biggest considerations with respect to whether COVID-19 related losses will be covered by business interruption insurance is whether those losses can be considered "physical loss" or "damage". Although unrelated to the interpretation of an insurance policy, a recent decision out of Pennsylvania's high court1 may be of some interest in this determination.
The Petitioners were four businesses and one individual from Pennsylvania seeking extraordinary relief from an Executive Order issued by the Governor of Pennsylvania. The Executive Order compelled the closure of the physical operations of all "non-life saving businesses" in the State.
The Governor's authority to grant the Executive Order is derived from the Constitution and the State's Emergency Code. The Emergency Code states that its purpose is to "reduce vulnerability of people and communities of this Commonwealth to damage, injury and loss of life and property resulting from disasters."
In the emergency application seeking to set aside the Executive Order, the Petitioners raised a series of statutory and constitutional challenges to the order.
Damage to property
The Emergency Code defines "disaster" as a "man-made disaster, natural disaster or war-caused disaster." "Natural disaster" is defined as: "any hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide, snowstorm, drought, fire, explosion or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life." The potential significance of this decision to business interruption claims is the court's consideration of this definition in the context of COVID-19.
The Petitioners argued that a viral illness cannot be considered a natural disaster because it is not of the same type or kind as those contained in the definition. The court disagreed, instead finding that the commonality among the events listed was that all involved the "substantial damage to property, hardship, suffering or possible loss of life." The court concluded that the COVID-19 pandemic is of the same general nature as those specifically enumerated.
The Petitioners argued that since no cases had been confirmed in their respective businesses, they were not in the "disaster area" where the Governor had jurisdiction to make an Executive Order. The manner of virus transmission was an important factor in the court's decision to reject this argument. The court found that since the virus can live on surfaces for up to four days and not all carriers are aware of their infection, any location where two or more people can congregate is within the disaster area. The court upheld the Executive Order.
Clearly, this case does not concern the interpretation of an insurance policy, and can be distinguished on that basis. However, the court's findings in this case illustrate how COVID-19 may be broadly characterized by the courts, suggesting that business have the potential to be "damaged" by COVID-19.2
1. Friends of DeVito, et al v. Tom Wolf, Governor, et al, (Case No. 2020).
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Article originally published on 6 May 2020
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