Insurers' COVID-19 Notepad: What You Need to Know Now, Week of 9.20.2021

Courts Dismiss COVID-19 Business Interruption Claims

On September 2, 2021, the district court for the District of New Jersey granted[RS1] Ace Property and Casualty Insurance Company’s motion for judgment on the pleadings and dismissed a dental group’s COVID-19 business interruption claim. The court held the policy’s virus exclusion unambiguously barred the plaintiff’s claims. Order at 19. The case is Blue Devil LLC v. Ace Prop & Casualty Co.

On September 3, 2021, the district court for the Southern District of California granted[RS2] American Guarantee and Liability Insurance Company and an AGLIC claims adjuster’s motions to dismiss a health system’s COVID-19 business interruption and negligent misrepresentation claims. The court held it lacked personal jurisdiction over the Texas-based claims adjuster because, “[b]ut for AGLIC assigning [the adjuster] to the plaintiff’s case, [the adjuster] has no ties to the State of California.” Order at 13. The court further found it lacked subject matter jurisdiction over the plaintiff’s claim regarding the closure of its gift shop because AGLIC was still adjusting the claim and therefore the claim was not yet ripe. Id. at 17, 20. On the remaining contractual claims against AGLIC, the court held the plaintiff failed to state a claim because it did not allege it suffered losses due to any physical loss or civil authority order covered by the policy. Id. at 16-19. Finally, the court rejected the plaintiff’s negligent misrepresentation claims, which were predicated on AGLIC’s alleged interpretations of the policy, because: (i) the alleged misrepresentations were “legal rather than factual,” and (ii) the plaintiff did not rely on the alleged representations because it still pursued its COVID-19 related claims. Id. at 19-20. The case is Palomar Health v. Am. Guarantee & Liab. Ins. Co.

On September 7, 2021, the district court for the Northern District of Georgia granted[JR3] Cincinnati Insurance Company’s motion to dismiss an amusement business’ COVID-19 business interruption complaint. The court noted that courts have refused to expand the phrase “direct physical loss” to include loss of use when the property has not been physically impacted because it would erase “direct” and “physical” from the policy. Order at 7. The presence of the coronavirus alone does not constitute a direct physical loss to trigger coverage because it does not physically alter the property and can be easily eliminated by disinfectant or naturally die. Id. at 7–8. Finally, the court held that purely economic damages not requiring repair or replacement of property do not fall under the coverage provisions of the policy. Id. at 9. The case is AIKG, LLC v. Cincinnati Insurance Co.

On September 8, 2021, the district court for the Southern District of Miami granted[JR4] Endurance American Specialty Insurance Company’s motion to dismiss a national real estate and investment firm’s COVID-19 related claims. Finding the plaintiff did not suffer “direct physical loss or damage,” the court dismissed its complaint. Order at 3. There was no physical problem with the property that caused the firm to suffer its economic losses, and so coverage was not triggered under the policy. Id. at 4. The case is Frontier Development, LLC v. Endurance American Specialty Insurance Co.

On September 9, 2021, the district court for the Eastern District of North Carolina granted[JR5] Illinois Union Insurance Company’s motion for judgment on the pleadings on Golden Corral Corporation’s business income loss complaint. Because the restaurant chain did not allege tangible, physical losses, it did not suffer the type of physical loss or damage required under the policy it was issued. Order at 13. The court found the allegations that the coronavirus physically damages anything it touches was nothing more than a “threadbare legal conclusion” about coverage under the policy. Id. “Simply put, the virus did not change the physical condition of the property.” Id. at 14. Just because virus particles landed on or near the property, it did not require “rebuilding, repair, or replacement.” Id. Additionally, the restaurant did not allege how the virus caused it to lose access to its properties. Id. at 18. While government orders caused its business operations to be disrupted, the plaintiffs did not allege that the orders were made “in response to an impending threat of physical, tangible loss to covered property” or neighboring property. Id. at 19. The case is Golden Corral Corp. v. Illinois Union Insurance Co.

On September 13, 2021, the district court for the Southern District of New York granted[SA6] National Fire Insurance Company of Hartford’s motion to dismiss a COVID-19 business interruption claim filed by an office project and furniture installation company. The court found that the policy’s “direct physical loss of or damage to” property provision requires that loss “must be tangible or material,” and that “loss of use of property alone is not ‘physical,’ and thus does not qualify as a direct physical loss.” Order at 11. The court further held that, even if the plaintiff had adequately pleaded coverage, the claim “would nonetheless be dismissed under the Policy’s virus exclusion,” id. at 17, which “unambiguously excludes coverage for losses resulting from a virus.” Id. at 18. The case is Elite Union Installations, LLC v. Nat’l Fire Ins. Co. of Hartford.

On September 16, 2021, the district court for the District of Massachusetts allowed[SA7] Cincinnati Casualty Company’s motion for summary judgment on a restaurant operator’s COVID-19 business interruption claim and denied the restaurant operator’s motion for summary judgment. The court concluded that the plain meaning of “physical loss” or “physical damage” in the policy “requires ‘tangible damage’ consisting of ‘some enduring impact to the actual integrity of the property at issue’ rather than ‘transient phenomena of no lasting effect,’” and that loss of use without tangible damage is not covered under the policy. Order at 26-27 (emphasis in original). The court further found that the “presence of COVID-19 in restaurants is not a ‘physical loss’ or ‘physical damage’ to property under the Policy because the virus had no physical effect on the property.” Id. at 33. The case is BN Farm LLC, et al. v. The Cincinnati Cas. Co.

On September 16, 2021, the district court for the Western District of Kentucky granted[SA8] State Auto Property & Casualty Insurance Company’s motion to dismiss a restaurant chain’s COVID-19 business interruption claim. The court found “as a matter of law that ‘direct physical loss or damage to’ requires ‘tangible harm or damage to the property covered by the agreement,’” Order at 17, and that the plaintiff failed to plausibly allege any tangible harm or damage to its premises. Id. at 20. The case is Wild Eggs Holdings, Inc., et al. v. State Auto Prop. & Cas. Ins. Co.

On September 17, 2021, the district court for the Eastern District of Michigan granted[JR9] State Farm Fire and Casualty Company’s motion to dismiss a dry cleaner’s COVID-19 business interruption complaint. Noting that several federal courts in Michigan have found the “accidental direct physical loss” provision unambiguous and requiring a physical change to the property, the court found the lack of an allegation that the property suffered tangible, physical losses dispositive. Order at 7–8. Because the loss alleged was economic, coverage was not triggered under the policy. Id. at 8–9. When turning to the policy’s virus exclusion, the court held that the shutdown orders “acted concurrently on in any sequence” with the coronavirus, and therefore they fall within the virus exclusion. Id. at 9–10. The case is Madison Square Cleaners v. State Farm Fire and Casualty Co.

On August 23, 2021, the circuit court for Cook County, Illinois granted[RS10] Erie Insurance Property and Casualty Company’s motion for judgment on the pleadings and dismissed several automobile dealerships’ COVID-19 business interruption and vexatious delay claims. The court held the plaintiffs failed to allege a covered physical loss under their policies because they could not allege that their properties were altered in appearance, shape, color or other material dimension. Order at 7. The court also dismissed the plaintiffs’ claim for alleged vexatious delays because there was no coverage under the policy. Id. at 9. Finally, even if the plaintiffs could have otherwise alleged facts supporting coverage, the court found their claims were barred by their policies’ virus exclusions. Id. at 10-11. The case is Napleton River Oaks Cadillac Inc. v. Erie Ins. Prop. & Casualty Co.

On August 25, 2021, the Supreme Court for Suffolk County, New York granted[RS11] General Casualty Company of Wisconsin’s motion to dismiss two medical practices’ COVID-19 business interruption claims. The court found that the plaintiffs failed to allege any covered physical loss or damage and that the policies’ virus exclusions applied. Order at 3-4. Similarly, the court rejected the plaintiffs’ claim for civil authority coverage because none of the relevant orders prohibited access to the plaintiffs’ properties. Id. at 4. The case is Island Gastroenterology Consultants, P.C. v. Gen. Casualty Co. of Wisc.

On August 25, 2021, the Circuit Court of McCracken, Kentucky granted[SA12] State Farm Fire and Casualty Company’s motion for summary judgment on a COVID-19 business interruption claim filed by a party supply store. The court concluded there was no “accidental direct physical loss” to the plaintiff’s property, because there was no proof that the property was actually contaminated by the coronavirus and, even if the plaintiff could prove it was, “the property was not ‘lost or ruined’ because the presence of the virus can be eliminated by routine cleaning and disinfecting.” Order at 2. The court further found that the policy’s virus exclusion prohibited recovery, as the “policy is quite clear that damages caused by viruses would not be covered.” Id. at 3. The case is Carla Bradford D/B/A/ The Party Shop v. State Farm Fire & Cas. Co.

New Business Interruption Suits Against Insurers:

A Native American tribe and its gaming enterprise division sued[SA13] Lexington Insurance Company, Underwriters at Lloyd’s, Homeland Insurance Company of NY, Hallmark Specialty Insurance Company, Endurance Worldwide Insurance Ltd, Arch Specialty Insurance Company, Evanston Insurance Company, Allied World National Assurance Company, Liberty Mutual Fire Insurance Company, Landmark American Insurance Company, Specialty Risk Underwriters, LLC, and XL Insurance America, Inc. in Arizona state court (Pima County) for declaratory relief, breach of contract, and breach of the covenant of good faith and fair dealing. The “all risk” policy allegedly provides business interruption, protection and preservation of property, extra expense, ingress/egress, and civil authority coverage. Complaint at ¶¶ 9, 16. The Complaint alleges that the plaintiffs suffered “direct physical loss or damage” to their properties and businesses, “because the Pandemic made such property unusable, uninhabitable, and/or restricted for clients.” Id. at ¶ 10. The case is Pascua Yaqui Tribe of Ariz., et al. v. Lexington Ins. Co., et al.