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Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of January 31, 2022

Client Alert | 4 min read | 01.31.22

Courts Dismiss COVID-19 Business Interruption Claims

On January 28, 2022, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s order dismissing a tae-kwon-do studio’s COVID-19 business interruption complaint. According to the Court of Appeals, “[e]ven assuming the virus’s presence at Kim-Chee’s tae-kwon-do studio, the complaint does not allege that any part of its building or anything within it was damaged—let alone to the point of repair, replacement, or total loss. Nor does Kim-Chee explain how, other than by the denial of access, any of its property could no longer serve its insured function.” Order at 3. Instead, the court found “the virus’s inability to physically alter or persistently contaminate property differentiates it from radiation, chemical dust, gas, asbestos, and other contaminants whose presence could trigger coverage under Kim-Chee’s policy.” Id. Relying on 10012 Holdings, Inc. v. Sentinel Insurance Co., 21 F.4th 216 (2d Cir. 2021), the court held the studio could not base its claims on loss of possession or access to constitute a direct physical loss. Id. The court also rejected the arguments that the absence of a virus exclusion denoted coverage for the claim. Id. at 3–4. The case is Kim-Chee LLC v. Philadelphia Indemnity Insurance Co.

On January 20, 2022, the Supreme Court of New York, New York County granted Aspen American Insurance Company’s and WKFC Underwriting Managers’ motion to dismiss an event space owner and operator’s COVID-19 business interruption claims. The court held the plaintiff failed to allege a direct physical loss or damage because, “[a]s many New York courts have already held,” the presence of coronavirus does not physically alter property in a permanent manner and can be eliminated by routine cleaning. Order at 9-10. For that reason, the court similarly held that the plaintiff failed to state a claim under its policy’s civil authority and sue and labor provisions. Id. at 14-15. The case is 632onHudson, LLC v. Aspen Am. Ins. Co.

On January 24, 2022, the district court for the Central District of California granted Liberty Mutual Group, Inc. and West American Insurance Company’s motion to dismiss an event planning company’s COVID-19 business interruption claim. The court found that the plaintiff’s alleged losses were not covered by the policy because the plaintiff failed to allege physical alteration of its property, and that its contention that closure orders caused direct physical loss of property by depriving it of the use of its facilities had already been rejected by the Ninth Circuit in Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am. Order at 3. The court further concluded that, even if the plaintiff could allege physical alteration of its property, “the Virus Exclusion would nonetheless bar coverage.” Id. The case is Green Apple Event Co., Inc. v. Liberty Mutual Grp., Inc., et al.

On January 25, 2022, the district court for the Middle District of Florida granted Independent Specialty Insurance Company’s motion to dismiss a restaurant’s COVID-19 business interruption claim. The court concluded that the policy’s virus exclusion barred coverage, as the plaintiff’s alleged losses “stemmed entirely from the orders limiting on-premises dining, and the orders stemmed entirely from COVID-19, a virus capable of inducing physical distress.” Order at 7. The case is Southshore Hospitality Mgmt., LLC v. Independent Specialty Ins. Co., Inc.

On January 26, 2022, the Superior Court of New Jersey, Camden County, granted several insurers’ motions to dismiss a COVID-19 business interruption claim filed by the owners and managers of several hotel, resort, and recreation destinations. The court concluded that the “mere presence of the Corona virus at or in the insured locations where general statements that the Corona virus exists on surfaces in the air at insured properties is insufficient to establish property damage.” Order at 15. The court further concluded that “the policies which contain a virus exclusion would preclude coverage even if the claims involved physical loss or damage to property.” Id. at 20. The case is Valleybrook Country Club, LLC, et al. v. Hallmark Specialty Ins. Co., et al.

On January 26, 2022, the district court for the Northern District of Texas granted Cincinnati Casualty Company’s motion to dismiss a gift shop’s COVID-19 business interruption complaint. Noting the distinction between loss of property and loss of use of property, the court explained that the complaint lacked allegations of direct physical damage to the property. Order at 7. Relying on the Fifth Circuit’s decision in Terry Black’s Barbecue LLC v. State Automobile Mutual Insurance Co., No. 21-50078, 2022 WL 43170 (5th Cir. Jan. 5, 2022), the court held that the policy required there be tangible alteration or deprivation of property to trigger coverage. Id. at 8. Here, the shop did not experience any loss of property “because nothing physical has happened to their property.” Id. The case is Lamacar Inc. v. Cincinnati Casualty Co.

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Client Alert | 6 min read | 03.26.24

California Office of Health Care Affordability Notice Requirement for Material Change Transactions Closing on or After April 1, 2024

Starting next week, on April 1st, health care entities in California closing “material change transactions” will be required to notify California’s new Office of Health Care Affordability (“OHCA”) and potentially undergo an extensive review process prior to closing. The new review process will impact a broad range of providers, payers, delivery systems, and pharmacy benefit managers with either a current California footprint or a plan to expand into the California market. While health care service plans in California are already subject to an extensive transaction approval process by the Department of Managed Health Care, other health care entities in California have not been required to file notices of transactions historically, and so the notice requirement will have a significant impact on how health care entities need to structure and close deals in California, and the timing on which closing is permitted to occur....