The financial impact of damage caused by the coronavirus is immense. Virtually every business in the U.S. is suffering and policyholders need to take action now to preserve their rights to coverage.
Last week, one New Orleans restaurant took such action by filing suit against its insurer. Oceana Grill v. Certain Underwriters at Lloyd’s, London, filed in the Civil District Court for the Parish of Orleans, State of Louisiana, stands as the first insurance lawsuit on record for coronavirus coverage. It will not be the last, and other policyholders across the country will face similar, if not identical, coverage disputes.
The restaurant’s petition demonstrates one way a policyholder may seek coverage. It also sheds light on coverage battles to come and underscores the importance of securing coverage for coronavirus losses.
Oceana Grill filed its lawsuit against its insurer seeking coverage under an all-risks property policy. All-risks policies typically cover all risks of direct physical loss or damage to insured property occurring during the policy period, unless they are specifically excluded.
Under an all-risks policy, once the policyholder demonstrates a loss or risk of damage to the property, the insurer has the burden of proving that the policy clearly and specifically excludes the cause of the loss.
Many courts have held that the presence of harmful substances that render property uninhabitable or unusable constitutes “direct physical loss or damage” and that tangible or structural damage is not required.
The Oceana Grill petition tees up the question of whether coronavirus losses constitute direct physical loss or damage under property policies. Policyholders can expect their property insurers to claim that physical damage is required, and that coronavirus does not cause tangible or structural damage to insured property.
However, courts across the country have held that the phrase “physical loss or damage” does not require tangible damage to a building’s physical structure. These decisions hold that the presence of harmful substances such as asbestos, fumes or odors in quantities sufficient to render the property uninhabitable or unusable may constitute direct physical loss within the meaning of a property policy.
1. The presence of coronavirus constitutes direct physical loss or damage.
The Oceana Grill plaintiffs argue that coronavirus constitutes a cause of real physical loss and damage that is physically impacting public and private property, and physical spaces in cities around the world. The Centers for Disease Control and Prevention have now stated that it may be possible for a person to contract COVID-19 “by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes.”
The Oceana Grill plaintiffs also allege that coronavirus “physically infects and stays on the surface of objects or materials, ‘fomites,’ for up to twenty-eight days, particularly in humid areas below eighty-four degrees,” and surface infection of insured premises by coronavirus “would be a direct physical loss needing remediation to clean the surfaces of the establishment.”
2. Coronavirus losses may also implicate civil authority coverage.
Many commercial property policies also cover business income losses suffered when a civil authority prohibits or impairs access to either the policyholder’s premises or property other than the insured’s property. The Oceana Grill plaintiffs also seek a declaratory judgment that orders issued by Louisiana Gov. John B. Edwards trigger the civil authority coverage of their policy.
As the plaintiffs correctly predicted, civil authorities initially tried to slow the spread of coronavirus by limiting the size of social gatherings, but many have since ordered the outright closure of service-industry businesses such as bars, restaurants, gyms and movie theaters. Losses due to these government-mandated closures may also trigger civil authority coverage.
3. Pollution exclusions should not apply to coronavirus losses.
The Oceana Grill petition notes that the policy does not include an exclusion due to losses from a virus or global pandemic. However, insurers are preparing to deny coverage for coronavirus losses based on pollution exclusions. These exclusions are designed to exclude coverage for environmental cleanups. A common version bars coverage for the costs of cleaning up or removing “pollutants,” defined to include any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.
Insurers argue that virtually everything is a pollutant, but courts analyzing pollution exclusions have construed them narrowly, noting that the terms “irritant” and “contaminant” are “virtually boundless, for there is no substance or chemical in existence that would not irritate or damage some person or property” and reading the exclusion literally “would negate virtually all coverage.”
These cases also note that pollutants are primarily inorganic in nature, and have held that bacteria was not similar to the listed examples. The use of the term “waste” also implies that the term applies to industrial byproducts, and not organic matter.
4. Policyholders must act now to preserve their claims under property policies.
The past few weeks have spread fear and uncertainty. Yet even in these uncertain times, policyholders can be sure of a few things. First, for many service-industry businesses, the stakes literally could not be higher. As the Oceana Grill plaintiffs note, the restaurant’s closure due to coronavirus represents an existential threat to its survival as a business.
In these bleak times, the same holds true for many bars, restaurants, gyms, movie theaters and other businesses in service industries. Securing coverage under property insurance may mean the difference between making it and filing for bankruptcy.
Second, do not assume that your policy does not cover business losses. When disaster strikes, insurers try to discourage policyholders from filing claims by setting a media narrative that there is no coverage for a given event. Businesses should not be dissuaded from making claims. Don’t take an insurance company’s advice on what is or is not covered.
Insurers sell coverage for all risks, including coronavirus. Don’t let insurers shake their heads and solemnly declare that there just isn’t coverage. As with all advice, consider the source.
Third and finally, policyholders must act now to preserve their claims under their property policies. This requires reviewing the policies and providing the required notice as soon as possible, to stave off insurer claims of late notice. Fighting coronavirus losses by securing property insurance coverage requires immediate action.
 Pet. for Declaratory J., Oceana Grill v. Certain Underwriters at Lloyd’s, London, No. 20-02558 (La. Civ. Dist. Ct. Mar. 16, 2020).
 Id. at ¶ 14.
 Port Auth. of N.Y. v. Affiliated FM Ins. Co., 311 F.3d 226, 231 (3d Cir. 2002).
 See, e.g., Cincinnati Ins. Co. v. Banks, 610 F. App’x 453, 457 (6th Cir. 2015); Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287 (10th Cir. 2006).
 See, e.g., Motorists Mut. Ins. Co. v. Hardinger, 131 F. App’x 823, 826-27 (3d Cir. 2005) (holding that a genuine issue of material fact existed regarding whether the insured’s property was nearly eliminated or destroyed, or made useless or uninhabitable, sufficient to constitute a “physical loss”); W. Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52, 55 (Colo. 1968) (holding that fumes from gasoline seeping into the soil under an insured church and rendering it uninhabitable established a “direct physical loss”); Widder v. La. Citizens Prop. Ins. Corp., 82 So. 3d 294, 296 (La. Ct. App. 2011) (holding that dust from lead paint rendering a home unusable or uninhabitable qualified as a “direct physical loss”); Sentinel Mgmt. Co. v. N.H. Ins. Co., 563 N.W.2d 296, 300 (Minn. Ct. App. 1997), aff’d in part, rev’d in part sub nom. Sentinel Mgmt. Co. v. Aetna Cas. & Sur. Co., 615 N.W.2d 819, 825-26 (Minn. 2000) (“Direct physical loss also may exist in the absence of structural damage to the insured property.”); Farmers Ins. Co. v. Trutanich, 858 P.2d 1332, 1335 (Or. Ct. App. 1993) (holding that odors from a methamphetamine “cooking” lab constituted “direct physical loss” within the meaning of the policy); Murray v. State Farm Fire & Cas. Co., 509 S.E.2d 1, 17 (W.Va. 1998) (“Direct physical loss also may exist in the absence of structural damage to the insured property . . . Losses covered by the policy, including those rendering the insured property unusable or uninhabitable, may exist in the absence of structural damage to the insured property.”).
 See, e.g., Port Auth., 311 F.3d at 236; First Presbyterian Church, 437 P.2d at 55; Widder, 82 So. 3d at 296; Trutanich, 858 P.2d at 1335.
 Pet. for Declaratory J., ¶¶ 19-20.
 Centers for Disease Control & Prevention, How COVID-19 Spreads (2020), https://www.cdc.gov/coronavirus/2019-ncov/prepare/transmission.html?CDC_AA_refVal=https%3A%2F%2Fwww.cdc.gov%2Fcoronavirus%2F2019-ncov%2Fabout%2Ftransmission.html.
 Pet. for Declaratory J., ¶¶ 21, 23.
 Id. at ¶¶ 25, 35.
 Id. at ¶ 31 (“[P]laintiffs expect that more restrictive orders may occur within the next 30 days as they have occurred in other cities around the world, including New York City, New York, where restaurants have been ordered to close . . .”).
 Pet. for Declaratory J., ¶ 15.
 Keggi v. Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785, 789 (Ariz. Ct. App. 2000).
 Id. (citing Nautilus Ins. Co. v. Jabar, 188 F.3d 27 (1st Cir. 1999)).
 Id. (citing Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 948 (Ind. 1996)).
 See, e.g., Motorists Mut., 131 F. App’x at 828 (noting that bacteria defied description as a solid, liquid, gaseous, or thermal pollutant because it was a living, organic “irritant” or “contaminant”); Keggi, 13 P.3d at 790 (holding that a pollution exclusion did not bar coverage for injuries suffered from drinking bacteria-contaminated water).
 Keggi, 13 P.3d at 790.
 Pet. for Declaratory J., ¶ 18.