Verveine Corp.1 & others 2 vs. Strathmore Insurance Company

The SJC in MA issued a decision in favor of insurers as it pertains to COVID-19 Business Income claims on April 21, 2022. 

The Court ruled that BI losses sustained by restaurants due to COVID-19 shutdowns do not constitute “direct physical loss of or damage to” Covered Property.  The Court concluded “that ‘direct physical loss of or damage to’ property requires some ‘distinct, demonstrable, physical alteration of the property.’”  Accordingly, “the COVID-19 orders standing alone cannot possibly constitute ‘direct physical loss of or damage to’ property.”  Notably, the Court went further and concluded that the actual presence of the virus on surfaces or in the air at restaurants does not amount to loss or damage to property.

As it pertains to the civil authority coverage, the Court similarly concluded that “for the same reasons that the presence of the COVID-19 virus at the restaurants themselves did not cause damage to property under business interruption coverage forms, the virus did not cause ‘damage’ to the properties within one mile of the restaurants.”

The Court noted that since the direct physical damage threshold was not met, the Court need not reach the issue of the virus exclusion.  However, the Court held that the absence of the exclusion cannot create coverage, and “the exclusion in no way implies that we should broaden the scope of coverage.”