In at least 30 states, business interests have influenced legislation discouraging COVID-19 lawsuits, often by increasing proof burdens for plaintiffs, according to Reuters. Insurance companies have also enjoyed broad success on motions to dismiss COVID-related damage claims. Some recent state court findings, however, offer plaintiffs hope of recovery in certain situations.

“Take-home” COVID-19

Employers have relied on worker’s compensation statutes to block lawsuits where employees contract the virus at work, then contaminate others, who become seriously ill or die. These statutes allow employees injured at work get quick insurance benefit payments, regardless of fault, in exchange for surrendering legal claims against the employer. But can an employee sign away the claims of customers, relatives, or other contacts?

See’s Candies found no protection under California’s worker’s compensation statute from a wrongful death action that arose when an employee allegedly contracted COVID while stationed close to sick co-workers, then spread it to her 72-year-old husband, who died of the disease. Despite businesses’ cries that companies would succumb to a “never-ending chain of derivative injuries and unchecked liability” absent statutory protection against third-party claims, an appeals court held in December 2021 that the statute did not bar the suit. The matter is now on appeal to the California Supreme Court.

If the lawsuit proceeds, the plaintiff will still have to prove the elements of the case, including that See’s owed a duty of care to the spouse (a finding that has proved problematic in other cases), that workplace processes were unsafe, and that the spouse in fact contracted COVID from the worker (essentially that neither the worker nor the spouse had other outside contact).  

Business interruption insurance coverage

Shutdown orders and social distancing mandates made normal operations impossible for many businesses during COVID, who made insurance claims to cover their resulting financial losses. Since 2020, most litigation over denied business interruption coverage—including about 95% of such cases in federal court—has favored insurance carriers, with courts often granting motions to dismiss insureds’ claims. In New Jersey, at least, some plaintiffs may still have their day in court.

Much of the litigation has involved whether common policy language indicating “direct physical loss” or “damage” to the property covers losses stemming from COVID-19 exposure. COVID-related damages do not involve physical alteration to the property but rather a loss use due to a forced closure. A case concerning this issue is currently before the Ohio Supreme Court.  

In one New Jersey case, the state court noted that “direct physical loss or damage” was not defined in the policy and that state and federal precedent tended to support the plaintiff’s claim. The holdings cited indicated that physical alteration was not a prerequisite to coverage, that loss of function was akin to direct physical damage, and that the presence of an invisible substance that rendered the property uninhabitable constituted physical loss or damage.  

The decision also addressed insurer construction of policy pollution contamination exclusions as precluding coverage for damage from viruses. The court noted that the contaminants listed in the exclusions generally related to traditional environmental pollution and cited prior unsuccessful insurer attempts to apply these exclusions outside of that context.  

Given precedent supporting the plaintiff’s legal claims and without compelling evidence that policy exclusions reasonably extended to communicable disease to bar coverage for COVID-related losses, the plaintiff’s allegations of loss of use sufficiently pled a cause of action of entitlement to coverage to proceed to trial.

Another New Jersey state court decision emphasized that to survive a motion to dismiss, a plaintiff need only make allegations which, if proven, would constitute a valid cause of action. Given that the plaintiffs alleged that COVID caused physical loss or damage to the insured property and that the insurer wrongfully refused to pay the claim pursuant to the policy, the suit could advance.

Preparing for COVID-related premises liability cases

Courts declining to liberally construe worker’s compensation statutes or apply unduly stringent standards to motions to dismiss offer plaintiffs the chance to conduct discovery, test and resolve factual allegations, and even win at trial.  

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