Hunton Insurance Recovery Blog

On February 6, 2023, The Claims Journal highlighted a letter by members of Hunton’s insurance team, submitted on behalf of United Policyholders, to the California Supreme Court, which alerts the Court to the fundamental infirmities in the “standard” expounded by the insurance industry in COVID-19 business interruption litigations nationwide. The letter was issued to assist the Court in addressing a question certified from the US Court of Appeals for the Ninth Circuit, in Another Planet Entertainment, LLC v. Vigilant Insurance Co, asking whether the actual or potential presence of the COVID-19 virus on an insured’s premises “constitute direct physical loss or damage to property” for purposes of coverage under a commercial property insurance policy.

It has taken a pandemic, but the fallacy of Couch’s “physical alteration” standard, accepted blindly by myriad courts nationwide in COVID-19 insurance disputes and beyond, has been revealed in an article co-authored by Hunton insurance partner, Lorie Masters, with substantial assistance from Hunton insurance associate, Rachel Hudgins.  The article, which received final publication in the American Bar Association’s TIPS Law Journal on October 26, 2021, makes a critical analysis of the landscape of judicial authority that existed when 10 Couch on Ins. § 148:46 (3d ed. 1998), the edition of Couch in which the standard first appeared, was published in the late 1990s.  The article then traces the evolution of that landscape through the beginning of the COVID-19 pandemic, when courts nationwide (predominantly federal courts), seized upon Couch’s standard as though it were a constitutional mandate. But as the article reveals, the standard is flawed, and thus the decisions that rely on it, infirm.