{"id":112396,"date":"2024-09-27T21:30:00","date_gmt":"2024-09-28T05:30:00","guid":{"rendered":"https:\/\/www.juneauempire.com\/home\/alaska-supreme-court-says-most-business-insurance-doesnt-cover-covid-19-damages\/"},"modified":"2024-09-27T21:30:00","modified_gmt":"2024-09-28T05:30:00","slug":"alaska-supreme-court-says-most-business-insurance-doesnt-cover-covid-19-damages","status":"publish","type":"post","link":"https:\/\/www.juneauempire.com\/news\/alaska-supreme-court-says-most-business-insurance-doesnt-cover-covid-19-damages\/","title":{"rendered":"Alaska Supreme Court says most business insurance doesn’t cover COVID-19 damages"},"content":{"rendered":"

In a first-of-its-kind ruling, the Alaska Supreme Court said Friday<\/a> that the COVID-19 pandemic does not qualify as “physical loss” or “damage” under common commercial insurance policies.<\/p>\n

The decision likely means that insurance companies will not have to pay most claims related to business losses caused by COVID-19.<\/p>\n

The ruling came in response to an unusual “certified question”<\/a> request from Alaska’s U.S. District Court. All 49 other state supreme courts have considered similar questions about COVID-19 liability, but until Friday, Alaska’s had not.<\/p>\n

“Even with our insured-friendly approach to interpreting insurance contracts, we conclude that neither the presence of the COVID-19 virus at an insured property nor operating restrictions imposed on an insured property by COVID-19 pandemic-related governmental orders is ‘direct physical loss of or damage to’ property. ‘Direct physical loss of or damage to’ property requires a tangible or material alteration of property,” wrote Justice Susan Carney on behalf of the court.<\/p>\n

The court’s decision, rendered unanimously, has major financial implications: If the court had decided differently, the ruling could have allowed businesses to collect millions of dollars from their insurance policies to cover the costs of COVID-mandated closures and health restrictions.<\/p>\n

In an amicus brief<\/a>, the American Property Casualty Insurance Association said insurance premiums would rise as a result if insurers were required to pay out more.<\/p>\n

The Supreme Court was asked to rule after Baxter Senior Living<\/a> filed suit two years ago against its insurance company, Zurich American.<\/p>\n

Baxter operates a senior home in Anchorage and spent money to enact anti-COVID procedures that also limited its operations. Local anti-COVID rules also restricted its operations. The company filed a claim in 2020 with Zurich American, but the company denied the claim.<\/p>\n

At the time, Zurich American said Baxter’s policy covered “direct physical loss of or damage to” property, and it argued that “(n)either the mere presence of the COVID-19 virus … or any generalized threat from its presence constitutes the ‘direct physical loss of or damage to’” Baxter’s property under the policy.<\/p>\n

Baxter challenged the denial in state court, and the insurer moved the case to federal court, which then asked the Alaska Supreme Court to decide whether the presence of COVID-19 constitutes “direct physical loss” or “damage” to property, and whether governmental orders pertaining to COVID-19<\/a> also constitute that loss or damage.<\/p>\n

“Our answer to both questions is ‘no,’” Carney wrote in Friday’s published order.<\/p>\n

Explaining at length, the order says that meeting the policy’s standard language requires “a physical alteration of property,” and COVID-19’s presence on a surface doesn’t alter its property.<\/p>\n

“An analogy between the COVID-19 virus and water illustrates this point,” Carney wrote in Friday’s order. “COVID-19 is to property what water is to a plastic sheet: water does nothing to a plastic sheet but at most, it stays on it or attaches to it. But water transforms, alters, or changes the state of dry paper into a wet “mush” or makes it much easier to tear.”<\/p>\n

“We conclude that ‘direct physical damage’ requires physical alteration of property. But because COVID-19 does not physically alter property and merely attaches to it, the presence of COVID-19 on property does not constitute ‘direct physical damage.’”<\/p>\n

Friday’s order marked the first time since 2021 that the court had been asked to consider a certified question from the state’s federal court.<\/p>\n

With the question resolved, the case returns to federal court for further proceedings.<\/p>\n

• James Brooks is a longtime Alaska reporter, having previously worked at the Anchorage Daily News, Juneau Empire, Kodiak Mirror and Fairbanks Daily News-Miner. This article<\/a> originally appeared online at alaskabeacon.com. Alaska Beacon, an affiliate of States Newsroom, is an independent, nonpartisan news organization focused on connecting Alaskans to their state government.<\/em><\/p>\n