Hartford Business Journal

12 HARTFORDBUSINESS.COM | FEBRUARy 20, 2023 By Andrew Larson alarson@hartfordbusiness.com T ens of thousands of companies claimed they lost income during the COVID-19 pandemic as a result of government-mandated shutdowns or other interruptions in business related to the public health crisis, and sought compensation through their property insurance policies. When their claims were denied, more than a thousand businesses filed lawsuits against their insurers. Years later some of those legal chal- lenges are still ongoing, but compa- nies hoping for a legal victory against — and payout from — their insurer suffered a major blow in Connecticut in recent weeks. The Connecticut Supreme Court in January upheld the denial of coverage in two separate cases brought by a group of medical practices and a shoe manufacturer, setting a precedent in favor of insurers that has sweeping implica- tions for businesses. The state high court's opinion — that the policies did not cover the plaintiffs' claims because they did not suffer any "direct physical loss of covered property" — is consis- tent with court decisions across the country, and is seen as a disappoint- ment for companies hoping to recoup pandemic-related losses, and a relief for insurance companies that were potentially on the hook for billions of dollars in claims. The implications are particularly important in Connecticut — home to many insurance companies that underwrite commercial all-risk property insurance policies and other similar business interruption coverages that have been in the legal crosshairs since 2020. Those insurers have responded to the pandemic by modifying language in new policies to account for the potentially crippling effects of another virus outbreak. That includes adding virus exclu- sions to policies, which specifically exempt damage arising from a virus, industry observers said. "One thing that insurance compa- nies are always doing: They're always trying to forecast the next eventualities," said Eric George, president of the Insurance Associ- ation of Connecticut. "It's impossible to be precise because we don't have crystal balls. You can get very close to precision through strict actuarial analysis. But now we know that the world can shut down because of a virus, because we saw it happen." CT cases The cases before the state's high court both involved subsidiaries of locally headquartered property and casualty insurer The Hartford, and the commercial all-risk property insur- ance policies it underwrote. The plaintiffs in one case included Connecticut Dermatology, which has locations across the state; Live Every Day LLC, an orthotics and prosthetics service in Simsbury; and Ear Specialty Group of Connecticut, based in Farmington. In the second case, Moda LLC, a fashion footwear manufacturer based in Greenwich, claimed it lost $100 million in business income as retailers canceled orders following government-mandated shutdowns. The court's analysis concluded that COVID-19 did not have a tangible effect on any of the plaintiffs' covered property. As a result, the justices agreed with the trial courts that ruled in favor of the insurers. "The question at the core of both decisions is whether the virus itself causes physical damage to property," said Patrick Kennell, a partner with New York-based law firm Kaufman Dolowich & Voluck. "It has been The headquarters of property and casualty insurer The Hartford, which was entangled in two recent major Connecticut Supreme Court cases involving pandemic-related business interruption claims. clear throughout the country that, in almost all cases, the courts have said now that there's no damage just by the presence, or fear of the presence, of the virus." The opinion, written by Chief Justice Richard Robinson, draws a distinction between loss of access to property and loss of property. The court rejected the plaintiffs' argument that their case was similar to ones in which "contamination of a property by harmful substances or bacteria was deemed to be a direct physical loss." The plaintiffs did not show that their buildings became "nonfunctional or inherently dangerous to persons who entered them," the opinion states. The decision was not a surprise to attorneys who follow the insurance industry, but it will have a significant impact, setting the stage for hundreds of lawsuits filed by businesses seeking insurance compensation for COVID-19 losses to be dismissed, experts said. For example, U.S. District Judge Kari A. Dooley cited the Connecticut Dermatology case in her Feb. 1 decision dismissing a complaint filed by New Haven entertainment venue Toad's Place, which sought compen- Business Interruption CT Supreme Court sides with insurer on pandemic-related property insurance claims Eric George Patrick Kennell PHOTO | COSTAR

• Cover