Seventh Circuit Issues Another Opinion Holding That Property Insurance Does Not Cover Loss of Income From COVID-19 Lockdown Orders

Michael R. Giordano

Stant USA Corp. v. Factory Mut. Ins. Co.

2023 WL 2326096 (7th Cir. 2023)

In a continuing string of appellate decisions, the Seventh Circuit Court of Appeals affirmed a district court’s decision holding that an insured company’s loss of business income due to suspension of operations during the COVID pandemic was not a covered loss under its property insurance policy. The insured was a manufacturer of products for automobile suppliers and manufacturers. As a result of the pandemic, according to the insured, customers ordered fewer vehicle product parts, which led to the insured sustaining more than $5.3 million in financial losses.

The insured submitted a claim to its insurer seeking reimbursement for the financial losses. As noted from the court’s previous decisions, a key to resolving this matter focused on whether the loss resulted from “physical loss or damage” to property from exposure of the COVID virus. The insured contended the present policy language was different from language interpreted by the court previously, because it covered “physical loss or damage” to property, while the language in the other cases required “direct physical loss or damage” to property. The insured contended that the absence of the word “direct” resulted in more expansive coverage, but the Seventh Circuit disagreed.

The court found that the key requirement of the policy language was “physical” loss or damage to the property. As in the previous cases, the court found that because there was no “physical alteration” of the property from exposure to the virus that resulted in the insured’s losses, the policy was not triggered.

This case is another reflecting the now almost universal opinion that COVID-19-related lockdown orders did not result in “physical loss or damage” within the meaning of most property insurance policies.