COA Declines to Expand Insurance Coverage in Wake of COVID Closures

By: Cassie Nielsen, Associate

In the wake of COVID-related closures, businesses large and small have turned to insurance to compensate for losses.  A recent Indiana Court of Appeals decision outlines the limits of such policies in the pandemic context and cautions a careful review of policies prior to making a claim.

In Indiana Repertory Theatre v. The Cincinnati Casualty Company,[1] local government orders necessitated by COVID forced closure of the Indiana Repertory Theatre (“IRT”) and cancellation of its remaining 2019-2020 season.  The IRT filed a claim for lost business income with its insurer, Cincinnati Casualty Company (“Cincinnati”).  Cincinnati denied coverage as the IRT provided no evidence of physical loss or damage as required under its commercial property policy.  IRT filed a declaratory judgment action seeking to declare the business losses as covered occurrences.  After cross motions for summary judgment, the trial court awarded judgment to Cincinnati.

On appeal, the Indiana Court of Appeals affirmed the trial court and held IRT’s loss of use does not equate to the type of “direct physical loss,” “damage,” or “physical alteration” to the property covered under the policy.  Although IRT asserted the policy’s reference to “accidental physical loss” encompassed loss of use, the Court of Appeals disagreed.  Citing New York’s Roundabout Theatre Co. v. Cont’l Cas. Co.,[2] wherein a construction accident and related street closure forced the closure of a local theatre, the Court noted “Roundabout’s building did not suffer any damage or alteration.  Rather the building was unusable for its intended purpose because of an outside factor.  The COVID-19 pandemic . . . is like the construction accident.”  As a written contract, the policy’s language must be read as a whole.  The policy provided for coverage during a “period of restoration” and “[w]ithout physical alteration or impact to IRT’s premises, there can be no period of restoration.”  Although “[m]illions of small business owners suffered losses due to the COVID-19 pandemic . . . we cannot ignore well-established principles of insurance contract interpretation and add provisions in the Policy that do not exist.”

So what is a business to do to recoup losses?  Although certainly a review of applicable insurance policies is a good start, particularly business interruption or similar policies, businesses should engage in a detailed review of outstanding accounts, initiate contact with indebted parties, and determine the viability of outstanding accounts receivable. Additionally, businesses may review their lending documents to ensure a clear understanding of key terms as well as proactively engage with lenders and other sources of capital. Rubin & Levin P.C. is a full-service business law firm and remains dedicated to actively monitoring the evolving developments relating to business financial resources during this time of crisis.  For more information or advice on about the above topics, please contact our firm.

[1] 2022 Ind. App. LEXIS 2 (Ind. Ct. App. 2022)

[2] 302 A.D.2d 1 (N.Y. App. Div. 2002)