The legal media have been inundated with articles by lawyers who represent policyholders and insurance companies discussing business interruption claims arising from the COVID-19 pandemic. Some of this discussion has carried over into the mainstream media, including a recent Wall Street Journal article. Much of the discussion focuses on two issues. First, property insurance policies require “direct physical loss or damage” to property (either to the insured property, or non-insured property within a certain distance of the insured property for a coverage called “civil authority”). A virus has never been found to cause damage to property. Second, many (but not all) of these policies have a virus exclusion. I’m not going to write more here about those issues. Plenty of electronic ink has been spilled on them already. But I haven’t seen anyone write about another exclusion that seems likely to apply to these claims if policyholders can somehow convince a court that there was “direct physical loss or damage” to property: the ordinance or law exclusion.

The ordinance or law exclusion typically provides that the insurer “will not pay for loss or damage caused directly or indirectly by . . . [t]he enforcement of or compliance with any ordinance or law . . . [r]egulating the . . . use . . . of any property . . . .” That seems to be precisely what many of the governmental orders being issued do. For restaurants, for example, government orders typically regulate the use of the business premises by limiting operations to takeout and delivery, prohibiting dine-in service. At some point it is expected that dine-in service will be allowed, but limited to tables spaced six feet or more apart, as has begun occurring in some other countries. With respect to other businesses, governmental orders may limit their operations to curbside delivery of items purchased by phone or online, or require or urge them to have employees work from home except for certain limited operations that can only be conducted in the office (such as maintaining the computer servers so the work-from-home workforce can keep working).

Two aspects of the language of this exclusion may cause insurers to rely on it, particularly those that do not have a virus exclusion directly on point. First, the exclusion typically has an anti-concurrent causation clause providing that “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” In other insurance coverage lawsuits, this type of language has quickly put an end to debates about whether there was some other cause of the loss. After Hurricane Katrina, for example, policyholders argued that negligence in maintaining the levees in New Orleans was the cause of the property damage, not the flood. Courts rejected that position for multiple reasons, including the anti-concurrent causation clause.

Second, the ordinance or law exclusion typically states that “[t]his exclusion, Ordinance Or Law, applies whether the loss results from: (a) An ordinance or law that is enforced even if the property has not been damaged . . . .” This language may allow courts, if they so choose, to sidestep the issue of “direct physical loss or damage” if they find that the exclusion applies.

My prediction? The ordinance or law exclusion will be coming to a court near you, as the COVID-19 insurance litigation heats up.

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Photo of Wystan Ackerman Wystan Ackerman

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class…

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class actions involving homeowners’ insurance coverage and market conduct/claim-handling practices. He has been prominently involved in high-profile property insurance litigation concerning the September 11th catastrophe and Hurricane Katrina, and Chinese-made drywall. Based in the insurance capital of Hartford, Connecticut, Wystan writes the blog Insurance Class Actions Insider, which was selected by Lexis Nexis as a top insurance blog for 2011.

Wystan grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state. He always had strong interests in history, politics and baseball and his heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox). Wystan says it was his early fascination with Lincoln that drove him to practice law. As a high school senior, he was one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified his interest in law and government. He went on to Bowdoin College, where he wrote for the Bowdoin Orient and majored in government. After Bowdoin, he went on to Columbia Law School. He also interned in the chambers of then-Judge Sonia Sotomayor on the Second Circuit. Wystan graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole.

When Wystan’s not at his desk, flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation he often can be found watching “Dora the Explorer” or reading or playing whiffleball with his young daughter, helping his wife with her business, Option Realty, reading a book about history or politics, or watching the Boston Red Sox.

Read Wystan’s rc.com bio.