The South Carolina Supreme Court joined the majority of U.S. jurisdictions in finding no coverage for business interruption claims caused by COVID-19 and related government orders in an Aug. 10 opinion. The court sided with the insurer and held that COVID-19 and related government orders do not constitute “direct physical loss or damage” necessary to trigger property insurance coverage.

In Sullivan Management LLC v. Fireman's Fund Insurance Co. et al., the South Carolina Supreme Court answered the certified question of whether the presence of COVID-19, “and/or related governmental orders,” constitutes “direct physical loss or damage,” which was not defined in the commercial property policy at issue.

The Court answered the certified question in the negative. The Court reasoned that “mere loss of access to a business is not the same as direct physical loss or damage. Although the government orders affected business operations, these restrictions did not cause any direct physical loss or damage.” The Court also rejected the insured’s argument that “the presence of virus particles . . . constituted physical loss or damage”: the Court stated that coronavirus particles “do[] not ‘alter the appearance, shape, color, structure, or other material dimension of the property”’ and differentiated COVID-19 mitigation steps from property repair or replacement. Ultimately, the Court held that “the policy’s triggering language is not met.”

Unlike many COVID-19 coverage cases recently decided in other states, the policy contained a Communicable Disease Coverage Extension. However, the Court declined to answer any questions related to the Communicable Disease Coverage Extension because they turned on whether the insured had suffered “direct physical loss or damage."

This case creates a South Carolina rule that COVID-19 business interruption claims do not trigger coverage under standard property insurance language. The Fourth Circuit Court of Appeals and other state courts within the Fourth Circuit have likewise rejected COVID-related business interruption claims. With this decision, South Carolina joins three other states – Massachusetts, Iowa and Wisconsin – whose state high courts have ruled in favor of insurers in cases involving COVID-related business interruption claims.