Cases could provide clarity on business interruption coverage

Business Insurance
04/15/2021

Policyholders may finally begin to get some certainty as to where they stand legally with respect to COVID-19-related business interruption cases with the Ohio Supreme Court accepting one such case and a federal appeals court holding oral arguments on a second.

The insurer in both cases was The Cincinnati Insurance Co.

On Wednesday — over the policyholder’s objections — the Ohio Supreme Court, with three judges dissenting, agreed to consider Neuro-Communication Services Inc.,  etc. v. The Cincinnati Insurance Co.; The Cincinnati Casualty Co.; and The Cincinnati Indemnity Co.

In the second case, the 8th U.S. Circuit Court of Appeals in St. Louis heard oral arguments Wednesday in Oral Surgeons P.C. v. The Cincinnati Insurance Co.in which the U.S. District Court in Des Moines, Iowa, ruled against the policyholder.

In the Neuro-Communications case, the Boardman, Ohio-based audiology company, which had purchased an all-risk policy from Cincinnati, submitted a business interruption claim in March 2020 that the insurer denied on the basis that it did not involve a direct physical loss to the property. 

Judge Benita Y. Pearson of U.S. District Court in Youngstown said in her request asking the Ohio Supreme Court to handle the case that its ruling will “bring uniformity of the application of state law to these policies.”

The question certified for consideration by the state Supreme Court was whether coronavirus’ presence constituted direct physical loss or damage and whether an infected person’s presence constitutes direct physical loss or damage.

The policyholder had asked that the Supreme Court not handle the case.  In its filing arguing against acceptance, Neuro-Communications said the questions involved are “not pure questions of law and should not be decided in a factual vacuum.

“Especially given the importance of any ruling that the Court would make on the certified question, the more appropriate course would be to decide any such questions only after discovery has been taken.”

In arguing the court should accept the case, the insurer said, “The certified question here should be accepted so that the Court can address the legal meaning of the insurance policy language involved here, resolving that issue for all Ohioans.”

Marshall Gilinsky, a shareholder with Anderson Kill LLP in New York, who presented an amicus brief supporting Neuro-Communications on behalf of advocacy group United Policyholders, said that prior to COVID-19, there were two decades of rulings on the question presented in this case “and they almost always favored the policyholder.”

Cincinnati Insurance said in a statement, “We appreciate the Ohio Supreme Court’s decision to hear our case. We know that many businesses have been impacted by the COVID-19 pandemic, and we empathize with them. … We continue to believe that pandemic-related economic losses do not constitute direct physical loss or damage to property — a prerequisite for coverage under our property policies.”

Policyholder attorney K. James Sullivan, a partner with Calfee, Halter & Griswold LLP in Cleveland, who is not involved in the case, said he believes three judges voted against hearing the case because of the policyholder’s objections.

Mr. Sullivan said he believes this is the first high court to agree to hear a COVID-19 policyholder/insurer business interruption case. 

He said that at various times, the Ohio Supreme Court has issued both pro-policyholder and pro-insurer rulings, and because of this he does not know how the court is likely to rule.

“I suspect we may end up seeing a split court, but I equally believe” that whatever ruling the court issues will be “substantive,” Mr. Sullivan said. “Other courts will take it into their account, for sure,” he said.

In the Oral Surgeons case, the U.S. District Court in Des Moines ruled in a two-page decision in September against the policyholder. It held that the term “loss” under the policy is defined to mean “accidental physical loss or accidental physical damage,” which is not alleged.

Attorneys in the case did not respond to requests for comment.

Observers have said that some degree of certainty as to where policyholders stand on COVID-19-related business interruption cases would remain elusive until state supreme courts and federal appeals courts issue rulings on the matter. To date, most lower court rulings have been in insurers’ favor.

Related People

Insurance Recovery Attorney | Anderson Kill P.C.
Marshall Gilinsky
Shareholder
Denver | New York

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