Vermont Supreme Court rules that policyholder can seek coverage for “direct physical loss or damage” stemming from COVID-19

  • September 23, 2022
Please see below for media coverage of this decision

Reversing a trial court ruling, the Vermont Supreme Court has found that under Vermont law, the nation's largest military shipbuilder, which remained in operation throughout the pandemic but suffered impaired operations due to the presence of COVID-19 at its facilities, may have suffered "direct physical damage" that would trigger coverage for its business interruption losses.  Remanding the case back to the trial court, the Vermont Supreme Court ruled that Huntington Ingalls Industries, Inc and its captive insurer may seek coverage from its reinsurers for "direct physical loss or damage" and resulting business interruption caused by the presence of the Coronavirus. Huntington Ingalls Inc. et al. v. Ace American Insurance Company et al.

Recognizing that "there is a majority approach that has been adopted -- primarily in various federal courts...that the presence of COVID-19 on a property is not 'direct physical loss or damage to property,' the court asserted,  "we are not bound by any of these decisions and...our conclusion is based on the application of settled principles of Vermont insurance law."

Relying on dictionary definitions of "loss" and "damage," the court held that coverage is triggered by either of two things: “direct physical loss” or “direct physical damage” – which have separate meanings.  The court concluded that “direct physical loss” requires a “distinct, demonstrable, physical change to property” and held that the policyholder had alleged that the presence of COVID-19 causes such a change.  The Court further noted that such a change “need not necessarily be visible; alterations at the microscopic level may meet this threshold.”

The Court further held that “direct physical loss” to property occurs where there is a persistent deprivation of property, including partial deprivation, with a causal nexus to a physical condition, noting that “deprivation opens the door for circumstances in which property is not harmed but may not be used for some reason” or “when property is unusable due to a health hazard.”

In support of its ruling, the Court repeatedly cited to numerous cases decided around the United States over the past 60 years, finding that things like fumes, odors and disease causing agents can trigger coverage in the absence of structural alteration to property – including the New Hampshire Supreme Court’s 2015 holding that cat urine odor can constitute “physical loss” to property.  The Vermont Supreme Court remanded the case for further proceedings in the trial court, including a determination of whether there was “physical loss or damage” under the standard set forth in the Court’s decision.

Marshall Gilinsky, a shareholder at Anderson Kill P.C. and part of a team that filed a brief in support of Huntington Ingalls on behalf of United Policyholders, a nonprofit policyholder's advocacy group, stated, "The Vermont Supreme Court's meticulous reasoning and adherence to pre-pandemic precedent is a powerful rebuttal to the too-common conclusion that the damage wrought by COVID-19 does not constitute 'direct physical loss or damage.'  The Vermont Supreme Court grounded its decision in state law and longstanding insurance law precedent, as have state courts in California, New Hampshire, Louisiana and Pennsylvania.  We hope and expect that more courts – both state and federal – will follow their lead."

Amy Bach, executive director of United Policyholders, said, "United Policyholders is pleased to see a careful analysis from a state supreme court that recognizes what the insurance industry and policyholders have long known: that all risks insurance policies protect against a broad range of perils, including deadly contamination by an invisible virus. Companies that purchase business interruption insurance pay high premiums to cover disruptions to their operations due to unforeseen events. That's exactly what happened during the COVID-19 pandemic, but insurance companies across the board summarily denied all COVID-19 related claims and were one of the few industry groups to profit during the pandemic. It's about time that insurance companies are held to their promises."

Marshall Gilinsky was recently quoted in several publications in reference to the September 23, 2022 Vermont high court decision in favor of Huntington Ingalls' virus coverage suit.

Following are the links to additional related press:

  1.  Law360 - Vt. Justices Revive Huntington Ingalls' Virus Coverage Suit
  2. Business Insurance - Vermont high court first to rule in policyholders' favor in COVID litigation
  3. Westlaw - Vermont high court refloats shipbuilder's COVID-19 coverage suit
  4. Reuters - Shipbuilder's COVID insurance lawsuit revived by Vermont high court
  5. Claims Journal - Vermont High Court:  COVID Virus, Like Cat Urine, Can Cause Physical Loss

United Policyholders was represented by Marshall Gilinsky, Rhonda D. Orin, Ethan W. Middlebrooks, Regan E. Samson, and Jason Kosek of Anderson Kill P.C.

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Marshall Gilinsky
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Jason Kosek
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Ethan W. Middlebrooks
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Rhonda D. Orin
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Regan E. Samson
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