Articles and Publications

The Implications of Covid-19 on Insurance Coverage as it Relates to Business Interruption Claims and Force Majeure Clauses

October 25, 2022

Liana M. Nobile

Jersey City

Perhaps since the very first executive order came out ordering businesses to close amid the early stages of the Covid-19 pandemic, attorneys have been holding their breath, waiting to see how Covid-19 would play out in terms of insurance coverage, especially as it relates to various policy provisions, including but certainly not limited to business interruption coverage claims.

The first verdict in the United States related to the issue of whether a commercial property insurance policy covers business interruption losses caused by the Covid-19 pandemic came down in Texas late September, with a jury issuing a $48.5 million verdict in favor of the Baylor College of Medicine.  This verdict, split into three categories of compensation ($42.8 million for business interruption, $3.3 million for extra expenses, and $2.3 million for research losses) resulted from the policyholder succeeding in showing that the facts of the case proved that the virus damaged its property.  Specifically, Baylor  succeeded in arguing that its education, clinical, and research work required it to take measures to keep its facilities open in order to treat patients suffering from Covid-19 and other medical conditions, conduct clinical trials for Covid-19 treatments, and to evaluate the effectiveness of other treatment options for Covid-19.  This unique set of facts allowed Baylor to prove that the Covid-19 virus was physically present at its facilities for the entire policy period at issue.

The categorization of whether Covid-19 caused damages as a question of fact means that we can expect many more such cases to survive the summary judgment phase of litigation and proceed to juries for a ruling.  Further, the judge’s finding of a fact issue as it relates to a virus causing damages represents a departure from previously settled law where judges in various jurisdictions had come to the opposite conclusion – that a virus could not cause damage as a matter of law (a precondition in many business interruption policies, including the one at issue, here).

Covid-19 and its implications on insurance coverage is not just at play in terms of business interruption claims, but we can expect to see the fall out from the pandemic in other avenues as well, including (but certainly not limited to) the implication and application of force majeure clauses.  While the applicability of force majeure clauses in light of Covid-19 remains a matter of first impression in New Jersey in terms of a verdict or ruling, we can expect to see more cases involving this issue, especially as other jurisdictions begin to grapple with this issue.

For example, a New York court recently granted summary judgment in favor of a couple who was forced to cancel their wedding contract due to Covid-19 related executive orders because their contract’s force majeure clause specifically included “government regulations and disasters” as a trigger for the clause, and at the time of the planned wedding date, government regulations were such that the venue would not be able to perform its obligations under the terms of the contract. Nelkin v. Wedding Barn at Lakota’s Farm, LLC, 152 N.Y.S.3d 216, 217 (Civ. Ct. 2020).

This is a developing area of law, and as more New Jersey courts address Covid-19 and its far-reaching implications, we will continue to monitor and report on this important topic for insurance carriers.