The American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies said commercial property insurance policies pay only for losses related to natural disasters, such as fires and hurricanes, and were never intended to cover pure financial losses from a pandemic.
“Property insurers are not, and cannot be, guarantors against the consequences of all unfortunate events that impact society at large,” the two groups said.
In the brief, the APCIA and NAMIC said Skillets LLC, which operates nine restaurants in southwest Florida, cannot get coverage under its policy with Colony Insurance Co. Last week, Colony asked the Fourth Circuit to reject the restaurant chain’s bid to revive its suit over uncovered COVID-19 losses, saying there was no physical damage to the eateries’ properties.
This is not the first time the APCIA and NAMIC have backed insurers’ position on not covering businesses for COVID-19 and government order-related losses at the federal appellate level. In May, the two groups urged the Eleventh Circuit and Seventh Circuit to uphold Aspen Specialty Insurance Co.’s and Cincinnati Insurance Co.’s wins over furniture retailer Rooms To Go and a steak house owner, respectively.
The business income and extra expense coverages in property policies are “secondary to and dependent on direct physical loss or damage to property at the insured premises that requires repair or replacement,” the trade groups said Tuesday. Skillets’ “operations are not what is insured — the building and the personal property in or on the building are.”
The restaurants did not lose their buildings or any properties but temporarily lost their ability to provide “in-person dining services — a property right that was never insured,” the APCIA and NAMIC said.
The trade groups asked the Fourth Circuit to follow the Eighth Circuit’s July 2 decision in Oral Surgeons PC v. Cincinnati Insurance Co. in which the appellate court ruled government orders did not cause direct physical loss or damage to an Iowa dental clinic’s premises.
“The ephemeral presence of a virus within a building is not the type of physical loss of or damage to property that property insurance covers,” the groups said. The government closure orders were issued to curb the spread of the COVID-19 outbreak instead of due to any loss or damage that occurred at Skillets’ properties, they said.
The APCIA and NAMIC also cited a March 2020 National Association of Insurance Commissioners statement saying “business interruption policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19” and asking insurers to cover pandemic-related economic losses would cause significant solvency risks for the industry.
According to the APCIA’s analysis, small business losses from the COVID-19 pandemic have been from $255 billion to $431 billion per month, while the total property-casualty industry surplus is about $800 billion. So forcing carriers to pay for pandemic risks would ruin their ability to cover wildfires, wind storms or thefts the policies were designed for, the group said.
“The ability of insurers to honor their promises made in insurance policies covering property perils would be dangerously undermined by a finding of coverage for purely economic losses attributable to the COVID-19 pandemic,” the APCIA and NAMIC said.
Representatives for the parties could not be immediately reached for comment Tuesday.
The two groups are represented by George E. Reede of Zelle LLP and Wystan M. Ackerman of Robinson & Cole LLP.
Skillets is represented by Timothy W. Burns and Brian P. Cawley of Burns Bowen Bair LLP, Lisa S. Brook and Kyle McNew of MichieHamlett PLLC, Adam J. Levitt and Kenneth Abbarno of DiCello Levitt Gutzler LLC, and W. Mark Lanier of The Lanier Law Firm PC.
Colony is represented by William F. Stewart and Gary W. Berdeen of Stewart Smith Law.
The case is Skillets LLC et al. v. Colony Insurance Co., case number 21-01268, in the U.S. Court of Appeals for the Fourth Circuit.
–Additional reporting by Amy O’Connor. Editing by Roy LeBlanc.