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Tenth Circuit: Government COVID Closure Orders Do Not Trigger Coverage for Loss of Business Income
In Goodwill Industries of Central Oklahoma v. Philadelphia Indemnity Insurance Co., — F.4th –, 2021 U.S. App. LEXIS 37802 (Dec. 21, 2021), the U.S. Court of Appeals for the Tenth Circuit joined other circuits in holding that government closure orders due to the COVID-19 pandemic do not trigger insurance coverage for loss of business income. The court reasoned that the temporary inability to use property caused by COVID shutdown orders doesn't involve a covered physical loss of property, and in any event, the policy's virus exclusion applied.
The Closure Order and the Insurance Policy
In March 2020, Oklahoma's Governor issued an executive order requiring businesses that were not considered part of the "critical infrastructure sector" to close to the public on March 25, 2020, due to the COVID-19 emergency. Id. at *2. Local closure orders followed. Id. In response, Goodwill halted its operations and suffered resulting losses. Id.
Philadelphia Indemnity insured Goodwill under a commercial lines policy. Goodwill's losses potentially implicated two policy provisions: the "Business Income" and "Period of Restoration" clauses. Under the Business Income clause, Philadelphia Indemnity agreed to "pay for the actual loss of Business Income [Goodwill] sustain[s] due to the necessary 'suspension' of [Goodwill's] 'operations' during the 'period of restoration.'" Id. at *3. A '"suspension'" "'must be caused by direct physical loss of or damage to property at [the covered] premises.'" Id.
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