Sometimes the Minority Interpretation is the Correct One

As we have noted previously in this space, a significant majority of courts nationwide have ruled that entities with standard Business Interruption coverage are not entitled to coverage for the Interruption to their Business resulting from Covid-mandated closures. These results are perplexing, given that they seem to stand on their head well-established rules of interpreting insurance contracts. Such time-honored precepts as finding coverage wherever reasonably possible, construing ambiguous language in favor of the insured policyholder, and giving meaning to all the terms of the policy have regularly been set aside to prevent the insurance industry from footing the bill for business lost to the pandemic. A few courageous courts have bucked this strong trend and found for beleaguered insureds, but the number is incredibly small. To that scrawny total we can now add the Supreme Court of North Carolina.

In a decision announced last week, the court found that local restaurants forced to shut down by Covid did in fact suffer “direct physical loss” within the meaning of a standard business insurance policy. In contrast to the large majority of state and federal courts across the country, the court recognized the obvious—businesses buy insurance to provide a financial safety net in the event their revenue is halted or greatly impaired due to factors beyond their control. They don’t weigh the niceties of whether the cause is a fire or a virus; the key is that when they can’t do business, they rely on the insurance they bought to sustain them.

The supreme court did not need to go out on a limb to find that coverage was well within the policy terms. Interpreting the policy language using standard dictionary definitions and reasonable interpretation, the court found that “Put together, a covered cause of loss must, absent an intervening factor, result in the material deprivation, dispossession, or destruction of property.” It then had no trouble determining that Covid restrictions resulted in the insureds being deprived and dispossessed of their property in the ways that truly matter to a business.

The real question is why so many other courts, applying basically the same rules of construction, reached the opposite conclusion. And is the public interest served by the huge profits enjoyed by the insurers while an awful lot of great restaurants went out of business?

The case is North State Deli, LLC et al. v. Cincinnati Insurance Company, et al., No. 225PA21-2 (S. Ct. N.C. 12/13/2024)