Insurance Law

Capacity limits on businesses can be a 'direct physical loss' covered by insurance, judge rules in bellwether cases

  • Print

coronavirus closed sign on restaurant

Image from

A federal judge in Chicago has ruled that pandemic-related business closings and capacity limits can qualify as a “direct physical loss” to property that is covered by "business interruption" policies.

U.S. District Judge Edmond Chang of the Northern District of Illinois ruled in three bellwether cases in multidistrict litigation against Society Insurance. Chang rejected a bid to dismiss the cases, reports.

In a Feb. 22 opinion, Chang said a reasonable jury could find that capacity limits prevent the restaurants and other hospitality businesses from using their physical space, qualifying as a direct physical loss.

The plaintiffs had argued that the presence of the coronavirus on or around their premises had created a dangerous condition, making their premises unfit for their intended use, therefore causing physical damage to the property. Their Society Insurance policies did not specifically exclude coverage for losses because of a virus or pandemic.

Society Insurance had argued that the losses were not physical because tables and chairs, walls and floors, stovetops and sinks remain in good working order, Chang said. The insurance company had also argued that any losses were due to shutdown orders, rather than the coronavirus itself.

Chang rejected both arguments. Under causation laws of the states of the plaintiffs, a reasonable jury could find that the virus was a proximate cause of the business interruptions, he said. And the plaintiffs don’t have to plead a change to the property’s physical characteristics because the policy doesn’t limit coverage to physical damage, he said.

“Viewed in the light most favorable to the plaintiffs, the pandemic-caused shutdown orders do impose a physical limit: the restaurants are limited from using much of their physical space,” he wrote. “It is not as if the shutdown orders imposed a financial limit on the restaurants by, for example, capping the dollar amount of daily sales that each restaurant could make. No, instead the plaintiffs cannot use (or cannot fully use) the physical space.”

The ruling affects about 40 cases against Society Insurance, according to Adam Levitt, the co-lead counsel for the plaintiffs in the multidistrict litigation against the insurer.

Levitt told that the ruling is the first to address business interruption claims in multidistrict litigation.

See also: “Coronavirus pandemic prompts wave of ‘business interruption’ lawsuits by restaurants” “Insurers rack up early wins in lawsuits over COVID-19 ‘business interruption’ coverage” “Nearly 300 federal suits stem from pandemic; 101 ‘business interruption’ cases filed; what’s next?”

Give us feedback, share a story tip or update, or report an error.