This morning, in the first state supreme court opinion on COVID-19 business income coverage, the Massachusetts Supreme Judicial Court held that the virus does not cause physical loss of or damage to property that could trigger coverage under commercial property policies.
In Verveine Corp. v. Strathmore Ins. Co., the Massachusetts Supreme Judicial Court upheld the trial court’s ruling in favor of insurers that had dismissed claims brought by the owner of three restaurants against both its carrier and insurance agent. Initially, the Court found the term “direct physical loss of or damage to” requires some distinct, demonstrable, physical alteration of property, which must then cause the suspension of business. Holding that the virus’ direct physical effect on the property did not cause physical damage, and “Covid-19 government orders standing alone cannot possibly constitute ‘direct physical loss or damage to property’…”, the economic losses fall outside the scope of the policy coverage. Additionally, the Court did not consider the actual or alleged presence of the virus relevant, since the “[e]vanescent presence of a harmful airborne substance that will quickly dissipate on its own, or surface-level contamination that can be removed by simple cleaning, does not physically alter or affect property.”
Because the threshold coverage trigger was not met, the Court deemed it unnecessary to address the applicability of the virus exclusion contained in one of plaintiff’s policies. The Court did note, however, that the absence of a virus exclusion does not create a negative implication that the policy should cover claims arising from the COVID-19 virus.
This post was originally published through Horst Krekstein & Runyon’s Property in 60 Seconds Newsletter. If you would like to receive future copies of that newsletter, please contact Sean Dever at email@example.com.