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Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of (February 14, 2022)

February 14, 2022

Courts Dismiss COVID-19 Business Interruption Claims

On February 1, 2022, the Michigan Court of Appeals affirmed the Circuit Court for Ingham County’s dismissal of three restaurant operators’ COVID-19 business interruption claims. The court held the plaintiffs failed to allege any covered loss based on Michigan’s COVID-19 civil authority orders because “mandating a more rigorous cleaning regimen” did not amount to physical damage or loss, and because the orders “applied to all businesses without regard to whether a single viral particle could be found within.” Order at 7. Even if plaintiffs could have alleged a physical loss, however, the court held the loss would have been excluded from plaintiffs’ business income coverage because that portion of the policy excluded losses “caused directly or indirectly by . . . [t]he enforcement of any ordinance or law . . . [r]egulating the construction, use or repair of any property.” Id. at 8. The court similarly rejected the plaintiffs’ claim for civil authority coverage, reasoning that the plaintiffs failed to allege any damage to nearby property and holding that “[t]he civil authority action cannot be both the cause of [the] damage and the response to it.” Id. at 9 (quoting Newchops Rest. Comcast LLC v. Admiral Indem. Co., 507 F. Supp. 3d 616, 625 (E.D. Pa. 2020)). Finally, the court held the policy’s virus exclusion plainly excluded plaintiffs’ claims. Id. at 10. The case is Gavrilides Mgmt. Co., LLC v. Mich. Ins. Co.

On February 8, 2022, the district court for the Western District of North Carolina adopted a Magistrate Judge’s Memorandum and Recommendation and granted Cincinnati Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the owners and operators of restaurants and catering companies. The court agreed with the Magistrate Judge’s finding that the policy’s Business Income and Extra Expense provisions were not ambiguous and that the plain and ordinary meaning of “accidental physical loss” and “accidental physical damage” “require actual, physical damage to the covered premises.” Order at 10. The case is FS Food Grp. LLC, et al. v. The Cincinnati Ins. Co.

New Business Interruption Suits Against Insurers:

The owner and operator of a restaurant sued Truck Insurance Exchange in California state court (Los Angeles County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, dependent properties, and civil authority coverage. Complaint at ¶¶6, 47. The Complaint alleges that the plaintiff “reasonably expected that its insured business would be covered during suspensions of business for reasons outside of its control,” id. at ¶50, and that “a commonsense analysis of the coverage language, indicates that Plaintiff’s inability to access or use specific property is a direct physical loss and eligible for restaurant business-income losses.” Id. at ¶ 51. The Complaint further alleges that the policy’s “virus exclusion is irrelevant to Plaintiff’s claim of direct physical loss resulting from governmental action” as the “claim rests on the risk of governmental action that is not included in the exclusion, which renders it a risk that is covered.” Id. at ¶ 13. The case is Robert Gary Restaurants, Inc. v. Truck Ins. Exch.

The owner and operator of a spa sued Truck Insurance Exchange in California state court (Los Angeles County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, dependent properties, and civil authority coverage. Complaint at ¶¶ 6, 46. The Complaint alleges that there is no indication that the policy’s direct physical loss provision requires a physical alteration and “reading the term in context of the language used elsewhere in the policy indicates the opposite is true.” Id. at ¶ 44. The Complaint further alleges that “Defendant’s application of the virus exclusion to deny coverage is wrong.” Id. at ¶ 89. The case is Ra Organic Spa v. Truck Ins. Exch.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Laura Foggan
Partner – Washington, D.C.
Phone: +1.202.624.2774
Email: lfoggan@crowell.com
Adam J. Singer
Associate – Washington, D.C.
Phone: +1.202.688.3508
Email: asinger@crowell.com
Rachel A. Jankowski
Associate – Washington, D.C.
Phone: +1.202.624.2647
Email: rjankowski@crowell.com
Samuel H. Ruddy
Associate – Washington, D.C.
Phone: +1.202.624.2564
Email: sruddy@crowell.com