For six years, enterprise interruption claims tied to COVID-19 have largely adopted a predictable script. Insurers cite “no direct bodily loss or injury.” Courts agree. Case dismissed. However on occasion, a call reminds us that insurance coverage protection disputes are distinctive and determined by coverage language. The Ninth Circuit’s latest choice involving Treasure Island and Affiliated FM Insurance coverage Firm (AFM) is a type of uncommon reminders. 1
Let’s be clear that this opinion was not a wholesale rejection of the prevailing rule that COVID-19 doesn’t represent “direct bodily loss or injury” beneath normal enterprise interruption provisions. The Ninth Circuit affirmed that Nevada regulation requires precise bodily alteration of property for conventional enterprise interruption protection. The presence of virus particles within the air or on surfaces isn’t sufficient. On that time, the trial courtroom’s ruling for the insurer was affirmed.
However that’s not the entire story. Treasure Island did one thing many fail to do. It learn the complete coverage. The AFM coverage contained particular communicable illness provisions. These provisions expressly supplied protection for losses ensuing from ailments transmissible from human to human. That language mattered. It modified the evaluation. It created a pathway unbiased of the standard “direct bodily loss or injury” argument, which has been rejected in numerous different COVID instances.
Treasure Island argued that if the coverage supplies protection for communicable illness losses, the phrase “bodily loss or injury” can’t be interpreted in a means that renders that protection meaningless. Much more attention-grabbing, AFM conceded on attraction that some communicable ailments could cause “bodily loss or injury” beneath its coverage. That concession alone distinguished the case from lots of the earlier COVID rulings.
The insurer tried to depend on its contamination exclusion, which barred protection for situations as a result of presence of a virus. However the Ninth Circuit acknowledged the apparent drawback. You can not promote communicable illness protection on one web page after which use a virus exclusion on one other web page to remove it totally. Insurance coverage insurance policies should be learn as an entire. Exclusions are construed narrowly. If there’s a battle between a particular grant of protection and a basic exclusion, courts is not going to permit the exclusion to swallow the protection.
That’s exactly what the Ninth Circuit held. The communicable illness provisions weren’t barred by the contamination exclusion as a result of the insurer couldn’t present that its interpretation was the one affordable one. Beneath Nevada regulation, that’s the insurer’s burden. It failed to satisfy it.
The courtroom additionally discovered that Treasure Island introduced enough proof that COVID-19 was really current on the property through the coverage interval and that its closure choice was pushed by that presence, not solely by authorities orders. That was sufficient to create a triable situation of reality. Abstract judgment for the insurer on these communicable illness provisions was improper.
The bigger lesson is to not let the insurer body the loss as a one-sentence situation. Insurance coverage contracts are refined risk-transfer devices. They include a number of grants of protection, situations, sublimits, and carve-backs. The trail to restoration isn’t at all times by way of the obvious doorway. Typically it’s by way of a separate provision that the insurer assumed would by no means be examined.
Treasure Island’s win is the product of disciplined coverage evaluation and a courtroom keen to implement the contract as written. In an period the place pandemic claims ended with the predictable shedding final result, this case proves that cautious studying of the total coverage nonetheless issues.
Thought For The Day
“The lifetime of the regulation has not been logic; it has been expertise.”
— Oliver Wendell Holmes Jr.
1 Treasure Island, LLC v. Affiliated FM Ins. Co., No. 24-7428, 2026 WL 594860 (9th Cir. Mar.3, 2026). See additionally, Reply Temporary of Appellant Treasure Island, LLC.