Reinsurance News

Cincinnati Financial found liable in major COVID-19 BI case

23rd October 2020 - Author: Matt Sheehan

A North Carolina judge has ruled that Cincinnati Financial is liable to pay out on business interruption (BI) claims filed by a group of restaurants who were forced to shut due to COVID-19.

In a landmark decision, the judge said that the virus caused a “physical loss” to the businesses, despite not causing physical alteration to property.

While Cincinnati is expected to appeal, analysts at Credit Suisse noted that the verdict will be a negative blow for the company and may encourage further lawsuits from policyholders.

Cincinnati’s defence – that physical loss requires physical alteration – is a common line that has been used by insurers to avoid paying out on BI claims linked to the pandemic.

But in this case, the judge ruled that such an interpretation would make other terms in policy language meaningless.


For example, Cincinnati’s policy refers to “accidental physical loss or accidental physical damage,” but “physical damage” is arguably redundant if either term requires physical alteration.

Ultimately, while the court acknowledged ambiguity in the policy language, it ruled that any ambiguity must be construed in favour of the policyholder.

But while this case could be a negative sign for the re/insurance industry, Credit Suisse believes it may be the first pandemic-related business interruption case that the US insurance industry has lost so far this year.

Analysts further noted that, unlike many of its peers, Cincinatti does not have a virus policy exclusion within its commercial insurance policies, meaning the broader risk to insurers may be isolated.

“We think the read-through is positive for the vast majority of insurers who do have a virus policy exclusion within their policies and are therefore not being disproportionally targeted with lawsuits,” they stated.

But even for Cincinnati, Credit Suisse says the outlook is not as bleak as it way earlier in the year, given that most businesses in the US re-opened or remained open through the pandemic.

Added to this is the larger trend of court cases on the BI coverage issues, which have for the most part ruled in favour of insurers on the basis of the physical loss/damage requirements.

Following the verdict, a Cincinnati spokesperson told Law360 that the company plans to appeal the decision, saying: “We continue to believe that business interruption coverage under our property policy in this case does not apply because there was no structural alteration to property.”

The spokesperson added: “The prevailing view by courts around the country has been that an economic loss alone doesn’t qualify as direct physical damage or loss to property, which is the trigger for business interruption coverage.”

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