Physical Damage and Ambiguity in the News

Contracts are in the news recently. Specifically insurance contracts. The onset of COVID-19/SARS-CoV-2 has led to a great many interruptions of businesses in America. As the pandemic evolved in the spring of 2020, there were quarantines that constrained individual employee availability and then there were "closure orders" issued in each of the states. The duration and breath of these varied. Businesses were closed, essential employees were defined, and America strove to avoid the dire consequences that the scientists predicted (the "worst-case simulation came up with 2.2 million deaths" based upon scientific modelling from Europe). Thankfully, those numbers have not materialized.
There may come discussion of how and where the predictions went astray. It is a malady that continues to periodically surprise science. Conclusions and advice have varied and evolved. There may also be implications of COVID-19/SARS-CoV-2 that are even yet to be appreciated or understood. See COVID in Comp - October Update (October 2020), and the discussion there of the "long COVID." There are perhaps many things as yet not medically clear about this virus, disease, and the effects. What is clear is that businesses were closed as a result. There were businesses that therefore did not generate revenue for some period of weeks or months. There are businesses that remain financially impacted yet today. 
In the marketplace, there are a variety of insurance products available to mitigate risks that are presented by the day-to-day. These can include coverage for damage to property (sometimes from specific causes, such as flood or wind; sometimes more general). There are potentials for liability from the injury to persons on a business' premises (which might be to the general public or to employees, the core of workers' compensation). And, as a fair number of businesses are learning, there is a risk that something will interrupt the operation of the business. 
The coverage for the latter of these comes most commonly from policies referred to as "business interruption insurance," which are designed to replace the stream of income when unexpected and untoward circumstances come to call. My first experience with that coverage was shortly after Hurricane Floyd meandered parallel to the Florida east coast. Sharing the helm of a reasonably recent law firm, we found ourselves ordered to evacuate from the beach in St. Johns County (Jacksonville essentially). My first cyclone experience, and a challenge on both personal and business levels. 
Fortune smiled on me then. The storm spared Florida and made a rather nasty impact on North Carolina instead. Within days, I was back to the beach, back in the office, and working to replace hundreds of paper files, books, and more that had been hastily packed and hauled out of harms way. Computers had to be repositioned, servers reconnected, and more. Many days of billable work were lost, and income was affected. Cash reserves were checked, and plans hastily made to regain normal footing. 
I was happy to hear from my insurance broker with a reminder that I had purchased this "interruption" coverage. Thereafter, various forms were completed, and within a few weeks a check was received. The loss of billed hours due to the storm effected no financial loss because of this coverage. 
But, not every business purchases business interruption coverage. In fact, according to U.S. News, only about one-third of "small businesses carry business interruption coverage." Thus, there are a fair number of businesses that may worry about their survival through the closures, and slow-downs, that are a portion of the COVID-19/SARS-CoV-2 impacts and implications. Those small businesses are therefore interested in exploring other insurance coverages that might similarly provide recompense in their time of need. In some instances, their very survival could hinge on finding outside financial support from insurance, government, or loans. 
As a result, a fair few lawsuits have already been filed seeking coverage from other types of policies. The Insurance Journal reports 1,183 such lawsuits have been filed thus far. That has to be considered in context; the U.S. Small Business Administration says that there are about 30.2 million small businesses in America. While there is concern as to the volume of lawsuits as regards interruption, the volume thus far is perhaps not a significant population. 
Clearly, a significant number of small businesses have closed in 2020. There are various news stories on that point. The Guardian reports that over 100,000 restaurants have closed, but that others are opening. It suggests that reasons may include more than COVID-19. CNBC reports a similar 100,000 number as the total of all small businesses closed this year. The two totals are thus hard to reconcile; if restaurant closures alone are that high, the total would seemingly be higher. Time will likely bring better clarity to both the volume and reasons of closure. 
Returning to the court decisions on business interruption, Business Insurance reports that "all but a handful of decisions — most of them by state courts — have gone against plaintiffs in pandemic-related business interruption cases." That is, most courts have concluded that coverage for business interruption under broader property policies are dependent upon the interruption being a result of "physical damage" to the business' premise(s). The concept being that when a hurricane damages a building, then the resulting business interruption may well be covered by that broader property damage coverage. However, it seems that courts have largely been unconvinced by the arguments for these general damage policies' coverage in the context of a pandemic like COVID-19. 
However, according to, a North Carolina court concluded last week that coverage may in fact exist for the impact or COVID-19/SARS-CoV-2 on business closure. In North State Deli, LLC et al. v. The Cincinnati Insurance Co., et. al. The Court concluded that the policy, the insurance contract, was ambiguous in that some language was subject to multiple interpretations. It held that 
“[e]ven if Cincinnati’s (the carrier) proffered ordinary meaning is reasonable, the ordinary meaning set forth above is also reasonable, rendering the Policies at least ambiguous, and any ambiguity should be construed against the insurer."
Though the outcome of the case as regards the "physical damage" to premises is somewhat unique and novel in the COVID-19 context, it is perhaps not so novel in the judge's conclusion regarding "ambiguity." A fundamental premise of the law is to construe contract ambiguity against the person or entity that drafted it. A good general discussion of this premise is found in the Corporate Counsel Business Journal in 2004. The real question, perhaps, is whether the policy (contract) language is indeed ambiguous as the North Carolina court concluded.  
The defendant in North Carolina, The Cincinnati Insurance Co., has expressed an intention to appeal the decision. Whether the trial judge's interpretations and conclusion of ambiguity will be sustained remains to be seen. However, there are those who see the trial decision in North State Deli as a harbinger of potential relief for businesses impacted by the pandemic. Others see the decision as a suggestion that insurance companies may be held to compensate a class of risk, interruption as a physical loss rather than due to a physical loss, that they did not anticipate or collect premium for. 
There is discussion in various circles as to whether other cases will be decided as they have been in "most courts," or whether the decision from North Carolina will be viewed favorably and persuasive. As with many lawsuits, there will be risks and arguments for various interested parties including businesses, insurance companies, and more. Understanding risks and impacts is not a novel concern or challenge. Businesses large and small persistently strive to appreciate and manage risk. It is an integral part of doing business.
The Florida Chamber of Commerce will present its Insurance Summit on November 5 and 6, 2020 (virtually). Included is a fifty-minute topic COVID-19’s Impact on Insurance: Liability, Business Interruption and Workers’ Compensation. I am proud to be participating in presenting on this panel, obviously with my focus being workers' compensation. But, I am also looking forward to hearing the experts discuss the implications of these potential interpretations of more general policies and the business interruption challenges.
I will strive there to address what COVID-19/SARS-CoV-2 has implicated in Florida workers' compensation. This may include discussion of the methods by which some other states have expanded the scope of workers' compensation through executive orders, legislation, and rules. It will include discussion of the breadth and severity of related workers' compensation claims as demonstrated thus far in the various reports from the Florida Division (as discussed in a variety of serial posts accessible here). And, it is likely to include some discussion of the potentials in litigation as this pandemic evolves and continues its impact on our lives. 
COVID-19/SARS-CoV-2 is a tremendous challenge on personal and professional levels. It is impacting individuals, business, families, governments, and society. The implications seemingly know no boundaries or borders. Frustrating our personal efforts to adapt to the challenge is the seemingly constant evolution of its impacts and the advice of so many experts. In the end, there are few easy and direct answers, and the effects may take time to evolve through advocacy and adjudication. In that context there is academic interest. But in the mean time, there are lives impacted every day. 
What will the future bring in terms of court decisions? Where will legislative efforts be directed as that season returns? Will a vaccine mean a return to "normal," and if so will it be the "normal" we once new or some "new normal" to which we will have to adjust? Truly intriguing questions that challenge us all in a complex and evolving world. 
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    About The Author

    • Judge David Langham

      David Langham is the Deputy Chief Judge of Compensation Claims for the Florida Office of Judges of Compensation Claims at the Division of Administrative Hearings. He has been involved in workers’ compensation for over 25 years as an attorney, an adjudicator, and administrator. He has delivered hundreds of professional lectures, published numerous articles on workers’ compensation in a variety of publications, and is a frequent blogger on Florida Workers’ Compensation Adjudication. David is a founding director of the National Association of Workers’ Compensation Judiciary and the Professional Mediation Institute, and is involved in the Southern Association of Workers’ Compensation Administrators (SAWCA) and the International Association of Industrial Accident Boards and Commissions (IAIABC). He is a vocal advocate of leveraging technology and modernizing the dispute resolution processes of workers’ compensation.

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