Iowa Supreme Court Ruling Shows Businesses Bear Pandemic Losses
WASHINGTON — An Iowa Supreme Court ruling on Friday that denied insurance coverage for COVID-19 losses to a golf club and a restaurant appears to be a sign of the times in lawsuits coming out of the pandemic.
A day earlier, a Massachusetts court ruled a business could not recover its pandemic losses from its insurer.
In both cases, the businesses were invoking clauses in their all-risk commercial property insurance contracts that said they could be compensated for the loss of use of their businesses after a disaster.
The Iowa court disagreed, saying there was no physical damage that would extend coverage to them.
“Iowa law requires there to be a physical aspect to the loss of the property to satisfy the requirement for a ‘direct physical loss of or damage to property’ included in Wakonda Club’s policy,” the Iowa Supreme Court ruling said.
Wakonda Club sued Selective Insurance Co. of America after shutting down completely in March 2020 and reopening with restrictions in May. Jesse’s Embers’ restaurant sued Western Agricultural Insurance Co. after closing down during the worst of the pandemic.
They were restricted by the governors’ orders on business shutdowns to carry-out, drive-through and delivery service.
The Iowa and Massachusetts rulings last week were not the first to reach final rulings but they demonstrate a trend that leaves little doubt insurance companies are winning nationwide.
Typically, the businesses that sue describe the pandemic as similar to a natural disaster, like a hurricane or flood.
The insurance companies, along with the courts, say there is a fundamental difference. The loss of use after a hurricane or flood normally means the buildings or equipment used by a business are damaged.
The Massachusetts Supreme Judicial Court became the first state high court to reach the same conclusion last week in agreeing with an insurer in a lawsuit by three restaurants. Additional pandemic-related lawsuits by business owners are pending in state high courts in Vermont, Wisconsin, Washington and Ohio.
One of the first cases to require direct physical damage before insurance coverage could begin was Rose’s 1, LLC, et al. v. Erie Insurance Exchange in Washington, D.C.
The restaurant argued that by complying with a city health department order to shut down, it fulfilled the requirement for physical damage to trigger its insurance coverage.
In an Aug. 6, 2020 ruling, a judge said that government orders to quarantine compelled businesses to take certain actions but “did not affect any direct change to the properties.”
The cases are Wakonda Club v. Selective Insurance Co. of America and Jesse’s Embers LLC v. Western Agricultural Insurance Co. in the Supreme Court of Iowa.
Tom can be reached at [email protected].