As the buildout of data center infrastructure has surged in recent years, a parallel wave of litigation and regulatory activity has begun to emerge. The expected disputes — those involving data center customers, vendors, project counterparties, and operators — continue to materialize. But they now arrive alongside a newer set of claims brought by neighboring residents, advocacy groups, and governmental and regulatory bodies, asserting traditional tort, property-damage, and environmental theories allegedly arising from various data-center related causes, including noise, vibration, emissions, permitting deficiencies, and construction and design defects. These allegations are often hotly disputed by data center owners and operators. Fortunately, as described below, insurance will often cover defense costs and any settlements or judgments arising from these data center claims.
These developing disputes illustrate how quickly risks associated with data centers can become third-party claims, which in turn raises important insurance coverage issues. While the rise of AI and cloud computing is a relatively recent phenomenon, the legal theories targeting data centers are long standing, and they include nuisance, trespass, negligence, statutory environmental claims, land-use challenges, and breach of contract.
Because these are traditional legal theories applied to emerging technologies and new facts, past precedent can serve as a useful indicator of potentially applicable insurance coverage. The central takeaway for policyholders, however, is straightforward: coverage should apply to many of the newly arising data-center-related claims. These claims may implicate several lines of insurance at once, and a close read of the relevant allegations and governing policy language can reveal broader coverage potential than may first appear.
Data-center complaints often do not fit neatly into a single traditional coverage category. A single dispute may combine allegations of nuisance, negligence, trespass, diminished property value, bodily injury, property damage, environmental harm, planning failures, construction defects, operational failures, contractual breaches, and service interruptions. These allegations are often disputed by the data center owners/operators or other relevant parties. Even where an underlying complaint is framed principally as a nuisance or environmental matter, the complaint may also include references to bodily injury and property damage, and the requested relief may include damages, injunctive relief, abatement, or mitigation expenses, each of which can implicate different policies in different ways. That mix creates both opportunities and challenges, and coverage may turn on how the complaint pleads injury, how the policy defines coverage triggers, and whether any exclusions are clearly implicated.
Key preliminary coverage considerations for data center claims include who is bringing each claim and the nature of the harms alleged in connection with such legal theories. Viewed through that lens, the majority of current data center disputes fall into three broad groups, based on who is advancing them: (1) residents and their communities, (2) advocacy groups and regulators (typically invoking federal and state environmental law), and (3) commercial counterparties. This e-alert focuses on the first category of such claims.
An emerging group of claims comes from people who live near a data center and claim injuries based on the alleged effects on themselves or their property and neighborhoods.
The most common form is the operational tort suit directed at data centers or associated power-generation infrastructure that are already built and running. Each of these suits centers on what is alleged to be persistent, continuous noise generated by HVAC systems, cooling towers, chillers, condenser fans, diesel generators, or gas turbines – allegations disputed by the defendants. Such lawsuits typically also allege that operators failed to deploy or inadequately deployed noise controls such as sound-absorbent materials, acoustic barriers, and other noise-reducing designs. The complaints generally plead private nuisance, public nuisance, and negligence on behalf of residents living near the facility, and allege harms including loss of use and enjoyment of property, diminished property values, sleep disruption, emotional distress, and physical injuries. Again, data center owners/operations dispute these claims and assert a variety of defenses. The remedies sought recur as well: compensatory and, frequently, punitive damages, and injunctive abatement of the noise. For example:
- In May 2026, a putative class action was filed over a computing facility in Dowagiac, Michigan (Valenzuela v. Alliance Cloud Servs., LLC, No. 1:26-cv-01694 (W.D. Mich.)), pleading private nuisance, public nuisance, and negligence on behalf of nearby households and linking the claims to allegations of continuous noise from cooling systems and backup generators. The Valenzuela complaint also cites media attention, local government scrutiny, and a newly enacted municipal noise ordinance in support of its “excessive noise emissions” allegations.
- A comparable action filed in Massachusetts in May 2026 (Delgrosso v. Markley Lowell, LLC, No. 2681CV01404 (Mass. Super. Ct., Middlesex Cnty.), transferred to Suffolk County, No. 2684CV02745 (Mass. Super. Ct., Suffolk Cnty.)) alleges that a data center’s cooling systems and generators produce excessive noise that has invaded neighboring properties and interfered with their use and enjoyment, and seeks damages and injunctive relief on behalf of a class of nearby residents.
- Another class action filed in Mississippi in June 2026 (Haley v. X.AI Corp., No. 3:26-cv-00148 (N.D. Miss.) raises similar allegations along with alleged bodily injury and emotional distress from noise and vibrations from a data center’s use of portable gas-fired turbines, including anxiety, elevated stress-hormone levels, fatigue, impaired concentration, headaches, nausea, and tinnitus.
- Neighbor claims, however, are not limited to noise from operating facilities. Some recent suits instead arise from the construction phase, alleging that site preparation and building work generated dust, emissions, property damage, or bodily injury. For example, a complaint filed in Alabama state court in June 2026 (Sansome v. Hoar Constr., No. 2026-902889 (Ala. Cir. Ct., Jefferson Cnty.)), alleges noise pollution, dust, and heavy traffic from construction of a new data center near the plaintiffs’ homes. One of the plaintiffs also alleges cracks in the foundation of his home appearing since the beginning of the nearby construction. They seek a temporary restraining order and permanent injunction to prevent the project from moving forward, as well as compensatory and punitive damages.
Again, the specific facts alleged, including the alleged injury, the phase of the data center’s development, and the relationship of the injured party to the operation, can all affect a coverage analysis and implicate varying lines of insurance.
Because a single data-center dispute can combine several theories and forms of relief, more than one of the lines below may respond to the same claim, and each therefore warrants review at the outset.
With respect to neighbor claims, a threshold coverage question is whether the alleged harms potentially trigger coverage. For example, under a standard Commercial General Liability (CGL) policy, a common issue is whether the alleged harm qualifies as “bodily injury,” “property damage” or “physical loss or damage,” as may be defined in the policy or construed according to the ordinary meaning of such phrases. Each of the cases discussed above may trigger coverage for allegations of bodily injury (e.g., Haley), property damage (e.g., Delgrosso), and/or physical loss or damage (e.g., Sansome).
Complaints with allegations of physical damage like the foundation cracking alleged in Sansome could provide a property damage allegation hook for coverage. In addition, the standard CGL definition of “property damage” reaches not only physical injury to tangible property but also loss of use of tangible property that is not physically injured, and that second prong is where many noise and nuisance allegations such as the Delgrosso class action may find purchase. In Delgrosso, the class action complaint includes allegations that the data center noise has forced plaintiffs to forego the use of their yards, porches, and other outdoor spaces and forces them to keep their doors and windows closed when they would otherwise have them open. Courts and commentators applying the “property damage” prong have recognized that a partial loss of use may suffice, so the property need not be rendered completely useless.
Further, because loss of use is an independent form of “property damage,” it may remain covered even where the underlying physical injury is itself subject to a policy exclusion. Insurers frequently argue that noise, annoyance, and diminution in value are intangible economic harms outside the coverage grant. But courts have, in analogous trespass and interference contexts, concluded that loss of use of property may fall within the “loss of use” prong, and some have found a defense owed even where the claimant’s property was not itself physically injured. See, e.g., KF 103-CV, LLC v. Am. Family Mut. Ins. Co., 630 F. App’x 826 (10th Cir. 2015) (unpublished) (applying Colorado’s broad duty-to-defend standard and holding that alleged loss of use of, and diminished value resulting from trespass to, tangible property fell within a CGL policy’s coverage for “property damage”). Other courts, however, have declined to treat loss of enjoyment as loss of use.
Some of the claims being advanced against data centers, even with respect to noise allegations, also have a “bodily injury” component. For example, the Haley complaint alleges headaches, nausea and tinnitus resulting from the alleged noise pollution. Where such bodily injury allegations exist, coverage arguments may also be advanced on that theory.
In addition, some complaints allege continuous, low-frequency noise and vibration as penetrating structures and producing measurable physiological effects, which might also be considered a form of physical loss by analogy to odor and contamination cases. In addition to alleging bodily injury, the Haley complaint alleges that the noise penetrates the walls of the plaintiffs’ homes and reduces their property values, including quotes from the lead plaintiff stating that he cannot continue to live in his home with the alleged noise and from another community member stating that he would not even be able to give his home away in light of the noise. Some courts have held that a persistent condition rendering property uninhabitable is enough to qualify as “physical loss or damage.” See, e.g., W. Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52 (Colo. 1968) (gasoline fumes that rendered a church building unusable constituted physical loss); Travco Ins. Co. v. Ward, 715 F. Supp. 2d 699, 708–10 (E.D. Va. 2010) (toxic drywall gases that rendered a home uninhabitable constituted “direct physical loss,” though coverage was ultimately denied on other exclusions). Others have insisted on a tangible physical alteration and have rejected claims premised on loss of use or diminished value alone. Whether courts will extend such analogies to the data center context is an open question.
Other policies may also be implicated, again depending on the specific allegations at issue and the language of relevant insurance policies. For example, where alleged injury is framed as arising from data-center services, engineering, design, construction management, or maintenance, other policies may also be called upon to respond, such as Technology Errors and Omissions policies.
Environmental and pollution coverage; cyber; builders risk; directors and officers liability; and data-center-specific policies, among others, should also be examined in the face of third-party claims being filed against data centers.
Given the novelty of these claims, it is prudent to avoid premature coverage conclusions in either direction. As with any significant covered risk, coverage disputes may occur, and they will require a close read of the policy and a review of relevant allegations and governing law. And because data-center matters typically involve multiple entities (e.g., owners, operators, developers, landlords, tenants, cloud-service providers, engineers, contractors, equipment suppliers, utilities, and technology or security vendors), coverage analysis should account not only for a policyholder’s own policies but also for contractual risk-transfer provisions, additional-insured rights, indemnity obligations, waivers of subrogation, project-specific programs, and excess coverage.
Covington’s global insurance recovery team, designated by Chambers as the “gold standard” for policyholder coverage work, has unsurpassed experience successfully recovering on these complex, high-value claims. All major insurers know Covington well, which often supports early resolution of claims. Where negotiation is not sufficient, we have a successful track record in courts and arbitral tribunals throughout the world. We stand ready to help policyholders identify potential coverage for existing losses and strengthen their coverage programs to address emerging risks.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Insurance Recovery practice.
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