New York business interruption insurance lawsuits brought over COVID-19 losses have almost all failed. State and federal courts in New York, up to and including the New York Court of Appeals, have held that a virus and the government orders that closed businesses in 2020 do not amount to “direct physical loss of or damage to” property, which is the trigger standard commercial policies require. No New York policyholder has won COVID-19 business interruption coverage through litigation.
Why the Claims Failed
Standard commercial property policies pay business interruption losses only when they flow from “direct physical loss of or damage to” the insured premises. Before the pandemic, New York courts read that language to require tangible harm to the building itself: a fire, a flood, structural damage.
Policyholders tried two main theories to fit COVID-19 into that framework. One was that the virus physically contaminated surfaces inside their buildings. The other was that executive orders making a property unusable amounted to a “loss” of the property even without visible damage. Insurers responded that the virus did not alter any building’s structure and that losing the use of a space is not the same as losing the space itself. The courts agreed with the insurers.
The Decision That Settled It: Consolidated Restaurant Operations
The controlling New York ruling came down on February 15, 2024, when the New York Court of Appeals decided Consolidated Restaurant Operations, Inc. v. Westport Insurance Corporation. CRO, which owned dozens of restaurants, carried an “all-risk” commercial property policy and argued that the coronavirus’s presence in its restaurants, combined with government-mandated closures, triggered business interruption coverage.
The court unanimously affirmed dismissal. Writing for the court, Justice Caitlin J. Halligan set a two-part standard: “direct physical loss or damage” requires either a “material alteration” of the property, meaning tangible, perceptible harm, or a “complete and persistent dispossession” of it. CRO had alleged neither. Allegations that the virus had been temporarily present were “too conclusory,” and even assuming presence, the virus does not alter the integrity of a structure in a way that calls for repair or replacement.
The court also rejected the idea that “direct physical loss” could stretch to cover “loss of use” or functional impairment. Reading it that way, the court said, would erase the line between physical loss coverage and general business interruption. The opinion noted that no state or federal court in New York had found coverage under similar policy language, and that the ruling aligned with the “weight of authority nationwide,” where more than 800 cases had been dismissed on similar grounds.
How Federal Courts in New York Ruled
The U.S. Court of Appeals for the Second Circuit reached the same conclusion in a series of decisions applying New York law. In 10012 Holdings, Inc. v. Sentinel Insurance Co., a Manhattan art gallery sought coverage after the March 2020 shutdown of nonessential businesses. The Second Circuit affirmed dismissal, holding that “direct physical loss” and “physical damage” require actual physical alteration or damage and do not cover mere loss of use.
The same reasoning drove affirmances in Kim-Chee LLC v. Philadelphia Indemnity Insurance Co., SA Hospitality Group, LLC v. Hartford Fire Insurance Co., and BR Restaurant Corp v. Nationwide Mutual Insurance Co. In Kim-Chee, policyholders argued that the absence of a virus exclusion in their policy should produce coverage. The court rejected that: when the initial grant of coverage demands “direct physical loss” and that requirement is not met, whether an exclusion exists is beside the point. The court added that general allegations of virus presence on surfaces fell short because the virus lacks the capacity to “physically alter or persistently contaminate property” the way asbestos or chemical contamination can.
At the trial level, Northwell Health, Inc. v. Lexington Insurance Co. is illustrative. One of New York’s largest healthcare providers sought reimbursement under policies offering up to $1.25 billion in coverage, arguing that virus-laden respiratory droplets were “physical objects” that attached to and damaged surfaces. Judge Jed Rakoff of the Southern District dismissed the case, reasoning that the virus harms the people who touch surfaces, not the surfaces themselves. Northwell’s facilities had kept operating with added precautions, and affected areas could be sanitized and restored. Treating droplets as physical damage, the judge wrote, would collapse physical-loss coverage into general loss-of-use coverage.
The Virus Exclusion as a Second Barrier
Many commercial policies contained an explicit endorsement, known in the industry as CP 01 40 07 06, that excluded loss caused by any virus or bacterium capable of inducing illness. According to industry data cited by the National Association of Insurance Commissioners, roughly 83% of business interruption policies carried a virus, disease, or pandemic exclusion as of December 2020.
Where the exclusion appeared, it gave insurers an additional and often decisive defense. In Northwell, Judge Rakoff also held that even if the policy’s communicable-disease provisions had applied, a pollution exclusion covering the “release, discharge, escape or dispersal” of contaminants independently blocked the claim.
When policies lacked a virus exclusion, policyholders invoked New York’s doctrine of contra proferentem, which construes ambiguous insurance language against the insurer. Courts acknowledged the doctrine but found the “physical loss or damage” requirement unambiguous, leaving no room for a policyholder-friendly reading to rescue a pandemic claim.
How New York Compares Nationally
New York’s outcomes track what happened across the country. More than 2,000 COVID-19 business interruption suits were filed nationwide. Every federal circuit that decided one, including the Second, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits, ruled for insurers. State high courts in Connecticut, Iowa, Louisiana, Maryland, Massachusetts, Nevada, New Hampshire, Ohio, Oklahoma, South Carolina, Washington, Wisconsin, and the District of Columbia reached the same result.
The lone state supreme court outlier was Vermont, which in September 2022 ruled 3-2 in Huntington Ingalls Industries, Inc. v. Ace American Insurance Co. that a shipbuilder had sufficiently alleged “direct physical damage” by claiming the virus adhered to surfaces and altered facility operations. The court remanded for further proceedings and acknowledged the plaintiff would still have to prove physical damage at trial. A Texas jury’s $48.5 million verdict for Baylor College of Medicine in September 2022 was later reduced to $12.1 million and then wiped out entirely in January 2025, when the Texas Court of Appeals for the Fourteenth District found legally insufficient evidence of “direct physical loss or damage” and rendered judgment that Baylor “take nothing.” None of those out-of-state developments change the law in New York.
What Changed in 2024: Stand-Alone Coverage
Because the courts closed the door on pandemic claims under existing policies, New York addressed the gap prospectively. On September 27, 2024, Governor Kathy Hochul signed A.10342/S.9481 into law as Chapter 369. The statute amends the New York Insurance Law to authorize a new category of “stand-alone” business interruption insurance that is not tied to physical loss or damage.
Under the law, this coverage can protect businesses against losses resulting from property damage, an act or threatened act of violence on business premises, or a government order. That last category speaks directly to the situation that left so many businesses without a remedy in 2020.
The New York City Bar Association’s Insurance Law Committee has flagged a drafting concern. The statute defines covered losses as those “resulting from a business closure,” while the legislative memorandum had referenced “a closure or a reduction in business.” The committee warned that this difference could leave businesses that stay partially open at reduced capacity without coverage, penalizing owners who try to mitigate rather than shut down entirely.
Whether insurers will actually sell these policies is another question. As of early 2025, legal commentators observed that it was “too soon to tell whether underwriters are enthusiastic,” and no insurer had publicly announced a stand-alone business interruption product under the new law.
What This Means If You Are a Policyholder
If your claim arises from COVID-19 losses under a standard commercial property policy, New York law as it stands offers no path to coverage. The Court of Appeals’ decision in Consolidated Restaurant Operations controls in state court, and the Second Circuit’s rulings control in federal court. Both require tangible physical alteration or complete dispossession, and the presence of a virus satisfies neither.
For future risks, including the next pandemic or another round of government closure orders, the only route to coverage under current New York law is a stand-alone business interruption policy of the type Chapter 369 now permits. Ask your broker whether any carrier is writing one, and read the trigger language carefully: if the policy pays only on a full “business closure,” a partial reduction in operations may not qualify.