Argument that COVID-19 does not cause physical damage prevails in early business interruption ruling.

On July 2, 2020, a Michigan state court issued one of the first apparent decisions on the merits involving a business interruption claim arising from COVID-19. In that ruling, Gavrilides Management Company, et al. v. Michigan Ins. Co., the judge granted insurer’s motion to dismiss. In applying Michigan law, the court analyzed the policy and determined that mere loss of use or access does not qualify as the “direct physical loss or damage” required for coverage. Moreover, as a second basis for dismissal, the court determined that the policy at issue contained a virus exclusion that applied unambiguously to COVID-19.
In an attempt to avoid dismissal, the claimant argued that the government orders were the cause of the interruption rather than COVID-19 itself. In applying the virus exclusion, however, the judge rejected that argument.
Although the Gavrilides Management ruling is under Michigan law, it considered arguments that are similar to countless other business interruption cases pending around the nation. Given the novel nature of COVID-19, also known as the “novel coronavirus,” courts may look to the Gavrilides Management ruling as persuasive authority. Of course, other decisions will turn on the specific language of the policies, specific exclusions, and the nature of each state’s law on interpretation of contracts and insurance laws. Whether courts do consider Gavrilides Management persuasive authority, insurers will almost certainly cite to it as authority for the proposition that COVID-19 does not cause physical damage, and therefore, does not trigger coverage for business interruption.