One of the first insurance coverage lawsuits related to the COVID-19 pandemic was recently filed in North Carolina. The Complaint was filed in Guilford County Superior Court by a group of local restaurants and bars. Plaintiffs allege various insurers wrongfully denied their claims for loss of business income resulting from Governor Cooper’s orders which caused plaintiffs to cease or limit their operations. The Complaint alleges that Governor Cooper’s orders were issued to “mitigate community spread” of COVID-19, not because of damages being caused by the virus itself. This is a different approach than that being taken in some COVID-19 coverage cases filed in other jurisdictions, where it has been alleged that the government shut down orders were issued in direct response to evidence of physical damage to property. See, e.g., French Laundry Partners, LP et al. v. Hartford Fire Insurance Co. et al.
Some of the policies at issue allegedly exclude coverage for losses “caused directly or indirectly by . . . virus,” while others do not. According to the Complaint, however, none of the policies exclude coverage “for damages cause by public fear and commotion and/or governmental action implemented in an effort to prevent the arrival of the virus or to mitigate the spread of the virus as opposed to damages caused by the virus itself.” The Complaint seeks a declaratory judgment that coverage exists under the policies, but it does not include claims for bad faith.
This case could set the tone for similar lawsuits that may be filed in North Carolina in the coming months, so it will definitely be one to watch.
We should anticipate several different theories of recovery from different lawsuits. Also, since different trial courts will move at different scheduling speeds and it takes a while to appeal a ruling through the appellate process, it will be some time before these issues are definitively resolved. Some coverage cases may get removed to federal court based on diversity of citizenship. Traditionally this has not been an area where the North Carolina Legislature has stepped in on a retrospective basis, and such a move would likely in any event trigger constitutional issues if addressed retrospectively. No over-arching federal legislation is on the radar at this time.