North Carolina Justices: A Tale of Two Businesses in COVID-19 Claims

In a recent ruling, the North Carolina Supreme Court issued mixed decisions on COVID-19 business interruption claims, favoring restaurants and bars while denying coverage to a clothing chain. The court's rulings highlight the significance of policy language, exclusions, and the nature of businesses in determining coverage for virus-related losses.



In the case of North State Deli, LLC et al. v. The Cincinnati Insurance Co. et al., the court ruled in favor of 16 North Carolina restaurants and bars. The businesses had sued their insurers, seeking coverage for losses incurred due to government-mandated closures during the pandemic. The court found that the insurers' "all-risk" policies did not define "direct physical loss" and lacked specific exclusions for viruses or contaminants. As a result, the court interpreted the policies to cover business income lost due to virus-related government orders, favoring ambiguity resolution in favor of the policyholders.



Conversely, in the case of Cato Corp. v. Zurich American Insurance Co., the court ruled against the clothing chain. Cato had sued its insurer, seeking coverage for alleged losses due to the pandemic. The court found that while Cato sufficiently alleged a "direct physical loss of or damage" to property, the policy contained a viral contamination exclusion that Zurich American had proven applied in this case. This led to the denial of coverage for Cato's alleged losses.

The North Carolina Supreme Court's mixed rulings underscore the importance of scrutinizing policy language and exclusions when evaluating business interruption claims. Insurers are likely to adjust their policy language and exclusions to address virus-related claims more explicitly in the future, potentially leading to increased premiums and reduced availability of business interruption insurance for small businesses.



As the pandemic continues to evolve, businesses must remain vigilant in reviewing their insurance policies and understanding the potential implications of virus-related exclusions. Investors should also consider the impact of these rulings on the insurance industry and the broader economy, as the availability and cost of business interruption insurance may change in response to the court's decisions.

In conclusion, the North Carolina Supreme Court's mixed rulings on COVID-19 business interruption claims highlight the significance of policy language, exclusions, and the nature of businesses in determining coverage for virus-related losses. As the insurance industry adapts to these rulings, businesses and investors must remain informed and proactive in managing their risk exposure and navigating the evolving landscape of business interruption insurance.