Louisiana Federal Court Latest To Find Pandemic-Related Losses Not To Trigger "Business Interruption Coverage" Under Commercial Property Policy

• Published date: 07 June 2022
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Wiley Rein
• Author: Mr Joseph W. Gross

In a win for Wiley's client, the United States District Court for the Eastern District of Louisiana, applying Louisiana law, granted an insurer's motion to dismiss with prejudice, finding that an insured hotel's economic losses related to the COVID-19 pandemic could not trigger coverage under a commercial property insurance policy. Hotel Mgmt. of New Orleans, LLC v. General Star Indem. Co., 2022 WL 1503299 (E.D. La. May 12, 2022). Specifically, the court held that the insured failed to allege "direct physical loss of or damage to" property. The Court's decision was the latest in a significant number of wins for insurers in similar cases.

The insured owned and operated hotels in New Orleans. The insured suffered financial losses due to the COVID-19 pandemic. However, the insured did not allege that its property was tangibly altered by the virus or that any physical repairs to its property were needed. The insurer moved to dismiss on the basis that such economic losses were not "direct physical loss of or damage to" property, which is required to trigger coverage under the relevant policy, which included Business Income and Extra Expense Coverage (colloquially referred to as "business interruption coverage"). The insurer also argued that the policy's Civil Authority Coverage was not triggered because the COVID-related governmental orders were issued to slow the spread of the virus rather than in response to any property damage.

The...