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“Physical Loss” and “Physical Damage” in Business Interruption Insurance Claims

Physical Loss” and “Physical Damage” in Business Interruption Insurance Claims

As we have discussed in other posts, business interruption insurance protects businesses against losses in situations where a business is physically incapable of opening its doors to its customers. Since many businesses have been either ordered to close, or have had their normal operations severely curtailed, by civil authorities in response to the COVID-19 epidemic, many businesses have filed business interruption claims with their insurers only to have those claims rejected because the insurer states that it is only liable for claims where there is direct “physical damage.”

In today’s post the business interruption claims lawyer at The Doan Law Firm takes note of three recent lawsuits contesting such “physical damage only” rejections by arguing that a mandatory closure or business activity restriction order issued by a state or local government causes a business to suffer a direct physical loss, even if there is no physical damage to the business location. A brief discussion of these cases is presented in the following sections.

  • On April 3rd the owners of Prime Time Sports Grill, a restaurant/bar operation located in Tampa, filed a lawsuit in federal court against Lloyd’s of London after the international insurance giant rejected Prime Time’s business interruption claim. The restaurant is alleging that the March 17th order issued by Florida Governor Ron DeSantis closing bars and restaurants throughout the state caused the business to suffer a direct physical loss because it was denied use of its business location.

  • Also on April 3rd, Indiana Repertory Theatre filed a lawsuit against Cincinnati Casualty Company after the insurer rejected its business interruption loss claim. The theater is arguing that its losses are a direct result of the forced loss of use of its facilities by complying with state-imposed COVID-19 mitigation measures. The lawsuit also states that its insurance policy does not contain an epidemic diseases and that its forced closing is equivalent to a direct physical loss and thus falls within the direct physical loss coverage with its insurer, Cincinnati Casualty.

  • On April 7th the company that owns and operates the Ollie Irene restaurant in the Birmingham (AL) suburb of Mountain Brook sued Farmers Insurance Exchange after the restaurant’s business interruption claim was rejected by its insurer. The restaurant is arguing that, by restricting its operations to curbside delivery, state and local orders implemented in response to the COVID-19 epidemic have impaired physical access to its business and thus caused a direct physical loss that is covered by its business interruption insurance. The insurer, Farmers Exchange, is contending that no physical loss has occurred and that its policy directly excludes losses due to epidemic diseases.

In each of the above lawsuits, the business owners are arguing that a civil authority closing order has prevented customers from patronizing their business and that such orders also prevent the business from carrying on its normal operations. Thus, a civil authority closing order has the same direct physical effect on a business as if it was damaged by a fire or an earthquake and their business interruption claims should be honored by their insurers. Further, they assert, even if their claims are rejected on “no physical damage” grounds, they are still covered by the civil authority interruption clause of their policies.

At The Doan Law Firm, we have advanc e d these same arguments since business closing orders began to be issued in the earliest days of the COVID-19 epidemic. We remain confident that both the individual state courts (which have jurisdiction over their respective states’ insurance regulations) and the federal courts will accept this reasoning and order insurers to honor these claims by businesses that have been shut down through no fault of their own!


If your business interruption insurance claim has been denied, we invite you to contact the business interruption claims lawyer at The Doan Law Firm, a national law practice with offices located throughout the country, to arrange a free review of your rejected business interruption claim and a discussion of the options that may be available to you.

When you contact our firm there is never a charge to review that facts in your business interruption claim rejection case or to speak with our business interruption claims lawyer nor does our free case review require that you hire us as your legal counsel. Should you later decide that a lawsuit is in order, and that you would like to have us represent you in court, we are willing to assume full responsibility for all aspects of preparing your case for trial in exchange for an agreed-upon percentage of the final settlement we are prepared to win for you.

At The Doan Law Firm, if we don’t win your business interruption claim case we don’t collect a fee and you owe us nothing!

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