Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of (February 28, 2022)

Courts Dismiss COVID-19 Business Interruption Claims

On February 23, 2022, the Sixth Circuit affirmed two Eastern District of Michigan courts that granted Cincinnati Insurance Company’s motion to dismiss three Michigan restaurants’ complaints for business interruption losses stemming from the COVID-19 pandemic. This is the sixth decision by the Sixth Circuit holding that insurers do not have to indemnify policyholders for these types of losses. The court found that the restaurants did not allege facts that show the virus caused actual property damage or loss. Order at 7. This missing element of harm, coupled with the restaurants’ failure to show how this loss “required it to suspend operations” to repair, rebuild, or replace the property, supported the district courts’ rulings to dismiss the complaints. Id. The case is Brown Jug, Inc. v. Cincinnati Insurance Co.

On February 24, 2022, the U.S. District Court for the Southern District of New York overruled a dental office’s objections to a recommendation from a magistrate judge that Sentinel Insurance Company Ltd.’s motion to dismiss be granted and adopted the report. The dental office alleged $150,000 in business interruption losses related to the COVID-19 pandemic. Finding that the mere presence of the coronavirus does not constitute “direct damage” under the policy, the court held this was “fully consistent with case law in this Circuit.” Order at 19. The government orders limited access rather than prohibited access, an important distinction. Id. at 20. The case is Sharde Harvey DDS PLLC v. Sentinel Insurance Co.

On February 22, 2022, the Supreme Court of New York, County of New York, granted several insurers’ motion to dismiss a COVID-19 business interruption claim filed by TopGun 21 Astor LLC. The court concluded that there was no coverage because the policy requires “direct physical loss or damage” and “COVID-19 did not cause physical alteration or damage to the premises.” Order at 2. The court further concluded that the case should be dismissed based on “the Microorganism Exclusion and the Seepage and/or Pollution and/or Contamination Exclusion, which both exclude coverage for occurrences where the presence of microorganisms or contaminants pose a risk to human health.” Id. The case is TopGun21 Astor LLC v. Certain Underwriters at Lloyds, et al.

New Business Interruption Suits Against Insurers:

A non-profit health system sued Factory Mutual Insurance Company in federal court (E.D. Tex.) for breach of contract, prompt payment under the Texas Insurance Code, and attorneys’ fees. Plaintiff’s “all risks” policy allegedly provided business interruption/time element and communicable disease response coverage. Complaint at ¶¶ 16-19, 58-63. The complaint alleges that plaintiff suffered a covered physical loss beyond the communicable disease sublimit in its policy because the Coronavirus alters ambient breathable air and can “physically bond” with surfaces. Id. at ¶¶ 56-57. The case is Baylor Scott & White Holdings v. Factory Mut. Ins. Co.

A Native American tribe sued Affiliated FM Insurance Company in Washington state court (King County) for breach of contract, negligence, alleged consumer protection act violations, and declaratory relief. Plaintiff’s “all risk” policy allegedly provides property and communicable disease coverage. Complaint at ¶¶ 6-7. The complaint alleges plaintiff suffered a covered loss “related to direct physical loss and property damage initiated by the communicable disease known as Covid-19 [sic].” Id. at ¶ 15.  The complaint also alleges AFM was negligent and violated provisions of the Washington Consumer Protection Act because its adjuster failed to conduct a fair and impartial investigation of plaintiff’s claim. Id. at ¶¶ 31, 35, 38. The case is Upper Skagit Indian Tribe v. Affiliated FM Ins. Co.

A restaurant owner and its landlord sued Mutual of Enumclaw Insurance Company in Washington state court (King County) for declaratory judgment, breach of contract, and alleged violations of the Washington Insurance Fair Conduct and Consumer Protection Acts. The complaint does not provide details regarding plaintiffs’ policy, but it alleges plaintiffs suffered covered physical losses “resulting from the COVID-19 pandemic” and from state and local civil authority orders. Complaint at ¶ 3.6. The complaint also alleges that Mutual of Enumclaw acted in bad faith and violated the Insurance Conduct act by denying plaintiffs’ claims, “sen[ding] a notice regarding COVID-19 and insurance coverage that did not identify coverage was available,” and refusing to reconsider plaintiffs' claim. Id. at ¶¶ 3.7-3.11. The case is NMG Restaurants, Inc. v. Mut. Of Enumclaw Ins. Co.

A restaurant owner and operator sued Auto-Owners Insurance in Wisconsin state court (Milwaukee County) for breach of contract, declaratory judgment, bad faith, and punitive damages. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 12. The complaint alleges plaintiff suffered a covered physical loss because state and local civil authority orders required plaintiff’s restaurants to close or otherwise limit their operations and because “SARS-CoV-2 virions have a corporeal existence” and thus would constitute a covered physical loss if found on plaintiff’s properties. Id. at ¶¶ 30, 42-43. The case is Triple Crown, Inc. v. Auto-Owners Ins.

A law firm sued Transportation Insurance Company in New York state court (New York County) for breach of contract and declaratory judgment. The plaintiff alleges it bought a policy containing business income, extra expense, and civil authority coverage and no virus exclusion. Complaint ¶¶ 11, 14, 16. It alleges the presence of the coronavirus on its property qualifies as a direct physical loss or damage because it rendered the property “unusable by physical forces.” Id. ¶¶ 26, 28. The case is Robinson Brog Leinwand Greene Genovese & Gluck P.C. v. Transportation Insurance Co.

A restaurant owner sued Starr Surplus Lines Insurance Company in New York state court (Westchester County) for declaratory judgment, breach of contract, and the breach of the covenant of good faith and fair dealing. The plaintiff’s policy allegedly contains business interruption, time element, civil or military authority, and extra expense coverage. Complaint ¶¶ 12–18. It claims COVID-19 “causes physical loss and damage by . . . destroying, distorting, corrupting, attaching to, and physically altering property . . . and by rendering property unusable, uninhabitable, unfit for intended function, dangerous and unsafe.” Id. ¶ 40. The case is Domco, Inc. v. Starr Surplus Lines Insurance Co.