Louisiana Federal Courts Continue to Follow Nationwide COVID-19 Coverage Trends; Reject Outlier State Court Case
Recent Louisiana COVID-19 coverage litigation reflects a split between state and federal courts as to whether COVID-19 business income losses are covered under commercial property policies. In a recent case, the Eastern District of Louisiana reinforced Fifth Circuit precedent that COVID-19-related business losses do not constitute direct physical damage under a commercial property policy.
Courts in Louisiana and around the country have consistently concluded that the presence of the COVID-19 virus and related government orders do not cause direct physical loss of or damage to an insured’s property. While that trend has continued nationwide, over the summer, a Louisiana appellate panel held in Cajun Conti L.L.C. v. Certain Underwriters at Lloyd’s, London that a commercial property policy covered business interruption losses caused by COVID-19, explaining that the policy was ambiguous as to what constituted a direct physical loss to the property. That appellate decision remains an outlier, as it is the only Louisiana case and one of the few in the country holding that business interruption losses caused by COVID-19 are covered losses.
Since the decision in Cajun Conti was issued, policyholders have cited the appellate court’s decision (which is not yet final because the insurers sought supervisory review from the Louisiana Supreme Court) to argue that COVID-19 losses are covered. Even post-Cajun Conti, federal courts in Louisiana have rejected such arguments, relying on precedent that coverage extends only to “direct physical loss of or damage to property” and does not include business income losses caused by COVID-19. In August, the U.S. Fifth Circuit Court of Appeals concluded that Cajun Conti was not binding and COVID-19 losses were not covered by insurers. The Fifth Circuit reiterated that reasoning in September.
A recent federal court ruling demonstrates that this trend continues. In the case, the insurer moved to dismiss the plaintiff’s COVID-19 claims because, among other reasons, the losses did not arise from direct physical damage. The policyholder replied that COVID-19-related business income losses arise from physical damage under the terms of the policy as interpreted by Louisiana courts (in the Cajun Conti decision). In granting the insurer’s motion to dismiss, the Eastern District rejected the reasoning in Cajun Conti and relied on Fifth Circuit precedent holding that COVID-19 related business income losses do not arise from direct physical damage, as is required for coverage. Another insurer recently moved for summary judgment on the same grounds.
Despite initial optimism from policyholders post-Cajun Conti, recent cases indicate that the federal courts likely will remain steadfast in their commitment to prior COVID-19 rulings, unless and until the Louisiana Supreme Court rules on the issue.
Updated on Nov. 22 - The Louisiana Supreme Court granted certiorari in Cajun Conti L.L.C. v. Certain Underwriters at Lloyd’s, London, meaning that the state high court will now consider whether pandemic-related business losses are covered under a commercial property policy.
Federal courts applying Louisiana law, including the U.S. Fifth Circuit, have consistently concluded that commercial property policies insuring against the “direct physical loss of or damage to property” do not respond to pandemic-related losses. However, the Louisiana Fourth Circuit opened the door to a contrary result in Cajun Conti by holding—in a plurality opinion—that the phrase “direct physical loss of or damage to property” was ambiguous as applied to those losses. Now, though, the Louisiana Supreme Court may resolve this conflict by addressing the Fourth Circuit’s Cajun Conti decision on the merits.
We will continue to closely monitor this important litigation. Please contact Caroline Crosby, Kevin Welsh, Elise McCanless or any member of the Phelps Insurance team if you have questions or need advice or guidance.