Guides
What the COVID-19 business interruption lawsuits decided
Courts mostly held COVID-19 closures were not direct physical loss under property policies. The key rulings, the exceptions, and what to check in your policy.
The short answer is that insurers won almost everywhere. Most courts held that a business income claim under a standard commercial property policy needs "direct physical loss of or damage to" property, and that a government closure order, or the virus on a surface that can be cleaned, is not that. A handful of policyholder wins, mostly on policies with no virus exclusion, were narrow or later limited.
The coverage question every case turned on
A business income claim under the ISO Business Income (and Extra Expense) Coverage Form, CP 00 30, pays for a "necessary suspension" of operations caused by "direct physical loss of or damage to" property at the described premises (business interruption insurance: how business income coverage works explains the mechanics). In 2020, restaurants, gyms, theaters, dental offices and retailers lost income to closure orders, and many sued when their claims were denied. The Penn Carey Law tracker showed 1,422 business interruption suits filed by January 6, 2021, according to Insurance Journal. Their theories were consistent:
- The virus was on the premises, and contamination is physical damage.
- A government order that removes use of the property is a "loss" of it, even without physical change.
- The order itself triggered civil authority coverage (civil authority coverage: when an order closes your doors).
- The policy had no virus exclusion, so the loss was not carved out of an all-risk (special form) grant.
Insurers answered that "physical" means a tangible change that repair or replacement can fix, that economic loss from an order is not physical, and that policies carrying ISO's virus or bacteria exclusion (CP 01 40, introduced in 2006) removed the claim anyway.
The scorecard
At the trial-court level, the same tracker showed insurers winning 83 of 105 cases decided on motions to dismiss or summary judgment as of that date. The appellate record was more lopsided.
Federal appeals courts. A Hinshaw & Culbertson survey current through March 2022 listed 28 federal circuit decisions from nine circuits that had gone for insurers, and none for policyholders (Hinshaw). The first came from the Eighth Circuit in Oral Surgeons, P.C. v. Cincinnati Insurance Co. (July 2, 2021). The Third Circuit's January 2023 ruling in the consolidated Wilson v. USI Insurance Service appeals against dozens of businesses joined ten other circuits, leaving only the D.C. Circuit without a decision, Business Insurance reported.
State supreme courts. Most of the high courts that ruled sided with insurers, including Ohio, Iowa, Massachusetts, Wisconsin, South Carolina, Washington, Oklahoma, Maryland, New York and Pennsylvania.
| Court | Case | Result |
|---|---|---|
| Ohio Supreme Court (Dec. 2022) | Neuro-Communication Services v. Cincinnati Insurance Co., 2022-Ohio-4379 | No coverage. Virus in the community, on surfaces or in an infected person is not direct physical loss. See Dinsmore's summary |
| New York Court of Appeals (Feb. 15, 2024) | Consolidated Restaurant Operations v. Westport Insurance Corp., 41 N.Y.3d 415 | No coverage. Virus presence and closures did not show physical loss or damage under the policy (opinion) |
| Pennsylvania Supreme Court (2024) | Ungarean v. CNA | No coverage. Covered loss requires a physical change to the property that needs repair or replacement; purely economic loss does not qualify |
| Vermont Supreme Court (Sept. 2022) | Huntington Ingalls Industries v. Ace American Insurance Co. | For the policyholder at the pleading stage only; the shipbuilder alleged the virus physically altered its property. Decided on a liberal pleading standard (Insurance Journal) |
| North Carolina Supreme Court (Dec. 13, 2024) | North State Deli v. Cincinnati Insurance Co. | For the restaurants. "Direct physical loss" included loss of use under policies with no virus exclusion (Browne Jacobson) |
The two policyholder wins matter, but notice their limits. Vermont was a ruling that the complaint could proceed, not that the loss was covered. North Carolina turned on an all-risk policy without a virus exclusion. In July 2026 the Fourth Circuit refused to reopen Golden Corral's 2021 federal loss in light of North State Deli, citing the weight of finality (Insurance Journal, July 2026). The same fact pattern can end differently depending on the state and the year of the ruling. See North Carolina and New York for their markets.
Civil authority and dependent property claims
Policyholders also argued that closure orders triggered civil authority coverage. Courts mostly disagreed. In 10012 Holdings v. Sentinel Insurance (2d Cir. Dec. 27, 2021), the Second Circuit found civil authority coverage unavailable because New York's orders responded to the pandemic and the danger it posed to people, not to physical harm to property near the policyholder. The form's own conditions point the same way: the order has to be issued because of damage to other property within the stated radius. The same physical-damage logic governs contingent business interruption insurance and supply chain risk. A supplier shut down by a closure order has suffered no physical loss either.
Why the virus exclusion matters
ISO's optional exclusion of loss due to virus or bacteria (CP 01 40) dates to 2006, and many carriers attached it to their property forms. Where it applied, insurers could point to the exclusion as a second ground for denial. Where it was missing, as in North State Deli, the physical loss debate went forward. Your policy today may carry different wording from the policies litigated in 2020 and 2021, so read it rather than assume.
What to check in your own policy
Use this as a one-page review at renewal (the annual business insurance review: what to update).
| Question | Why it matters now |
|---|---|
| Is a virus, bacteria or communicable disease exclusion attached? | If yes, the claim usually ends there regardless of the "physical loss" debate. Look for CP 01 40 or a carrier equivalent |
| Does the policy define "physical loss or damage"? | The standard ISO forms leave the phrase undefined, which is why the cases turned on ordinary meaning and context. Check whether your carrier's form says more |
| Is there a communicable disease extension? | Some carrier forms add a limited one. Read its trigger and its sublimit before relying on it |
| What does the civil authority section require? | Damage to nearby property, a one-mile or other radius, and an order issued because of it |
| Is there a separate pandemic or event cancellation cover? | Standard property forms do not provide it, and event cancellation insurance: what it covers and what it leaves out has its own communicable-disease limits |
If your business depends on in-person events, consider whether a purchased cover, a contingency plan or parametric insurance for businesses fills what the property policy will not. Cover bought after an outbreak begins would not respond to that outbreak.
If you have an old denied claim
Suit-limitation clauses in the policy and state statutes of limitations vary, and the law in your state may differ from the rulings above, as the North Carolina result shows. If you are in an active dispute, coverage litigation and declaratory judgment actions: when you and your insurer end up in court explains how these cases proceed, and a coverage attorney can tell you where your state stands.
Key takeaways
- Across federal appeals courts and most state supreme courts, "direct physical loss or damage" was held to require a tangible physical change. Closure orders and loss of use alone did not qualify.
- Policyholder wins in Vermont (pleading stage) and North Carolina (no virus exclusion) were exceptions, and the North Carolina win did not rescue earlier lost federal judgments.
- Civil authority and contingent business income claims failed for the same reason: no physical damage to other property that caused the order or the supplier's shutdown.
- Check your current policy for a virus or communicable disease exclusion and for the exact definition of physical loss; do not assume a pandemic is covered.