Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of (March 21, 2022)

Courts Dismiss COVID-19 Business Interruption Claims

On March 16, 2022, the Ninth Circuit affirmed the dismissal of a café’s COVID-19 business interruption claim. The court concluded that the California Court of Appeals’ holding in Inns by the Sea v. Cal. Mut. Ins. Co., 286 Cal. Rptr. 3d 576 (Cal. Ct. App. 2021) controlled and, therefore, that the policy did not cover COVID-19 related business losses. Order at 3. The case is Steven Baker, et al. v. Ore. Mut. Ins. Co.

On March 15, 2022, the Appellate Court of Illinois, Second District, affirmed the trial court’s grant of Society Insurance Inc.’s motion for judgment on the pleadings in a COVID-19 business interruption claim filed by Sweet Berry Café, Inc. The case is Sweet Berry Café Inc. v. Society Ins., Inc.

On March 15, 2022, the district court for the Northern District of Mississippi granted State Auto Property and Casualty Insurance Company’s motion for summary judgment in a COVID-19 business interruption claim filed by the owners and operators of restaurants and denied the plaintiffs’ cross-motion for summary judgment. The court concluded that the policy’s food-borne illness endorsement did not provide coverage for the restaurant’s alleged losses because there was no allegation or evidence that COVID-19 was present at the subject premises or that the closure orders resulted from actual or alleged exposure to the virus. Order at 10-11. The case is Univ. Mgmt., Inc., et al. v. State Auto Prop. & Cas. Ins. Co.

On March 17, 2022, the district court for the District of Connecticut granted Cincinnati Insurance Company’s motion to dismiss a restaurant and bar’s COVID-19 business interruption claim. The court concluded that the “plain, ordinary meaning of ‘physical loss’ or ‘physical damage’ unambiguously requires physical damage or physical alteration to the Covered Property” and because “Plaintiff has not alleged any facts supporting its claim that the Covered Property suffered direct ‘accidental physical loss or accidental physical damage,’ Plaintiff is not entitled to coverage under the Policy.” Order at 11. The case is Great Meadow Café v. Cincinnati Ins. Co.

On March 18, 2022, the Second Circuit affirmed the dismissal of a food service company’s putative COVID-19 business interruption class action. The court held the plaintiff’s argument for a direct physical loss due to civil authority orders was “foreclosed by this court’s recent decision in 10012 Holdings, Inc. v. Sentinel Ins. Co.” Order at 6. The case is SA Hosp. Grp., LLC v. Hartford Fire Ins. Co.

On March 17, 2022, the Ninth Circuit affirmed the dismissal of a public relations company’s COVID-19 business interruption complaint. The court “agree[d] with the numerous published decisions interpreting nearly identical policy language requiring ‘direct physical loss or damage’ to the insured property according to its plain and ordinary meaning and unanimously concluding coverage does not exist.” Order at 2. The case is Levy Ad Grp., Inc. v. Fed. Ins. Co.

On March 14, 2022, the district court for the Northern District of California granted Zurich American Insurance Company’s motion for judgment on the pleadings and dismissed a casino’s COVID-19 business interruption claim. The court held the plaintiff’s claim was foreclosed by the Ninth Circuit’s decision in Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am. Order at 8.

On March 14, 2022, the district court for the Northern District of Florida granted Southern-Owner Insurance Company’s motion to dismiss a restaurant owner and operator’s business interruption claim. Noting “numerous decisions in Florida and elsewhere” that have “almost uniformly held that economic losses resulting from state and local government orders closing businesses to slow the spread of COVID-19 are not covered under ‘all risk’ policy language identical to that in this case,” the court held the plaintiff failed to plead covered physical loss or damage. Order at 10, 12. The case is TL Goodson, LLC v. Southern-Owner Ins. Co.

On March 18, 2022, the district court for the Eastern District of North Carolina granted Hartford Casualty Insurance Company’s and Sentinel Insurance Company, Ltd.’s motion to dismiss class claims brought by a law firm for COVID-19 business interruption claims. The court held the virus exclusion plainly and unambiguously applied to prevent coverage for the claims. Order at 5. The case is Rodzik Law Grp. v. Hartford Cas. Ins. Co.

On March 17, 2022, the district court for the Central District of California granted Federal Insurance Company’s motion to dismiss an advertising company’s COVID-19 business interruption complaint. Under California law, the court held that the presence of the coronavirus does not qualify as “direct physical loss or damage” when “the actual loss was caused by a general government shutdown order due to the widespread presence of a virus, rather than the presence of a virus on the insured’s specific property.” Order at 2. Additionally, there was no civil authority coverage because the orders were issued “to prevent the spread of the COVID-19 virus” rather than “due to direct physical loss of or damage to” the insured property. Id. Lastly, the absence of a virus exclusion does not create coverage. Id. at 3. The case is Create Advertising Grp. v. Fed. Ins. Co.

On March 15, 2022, the district court for the Southern District of Georgia granted Affiliated FM Insurance Company’s motion for partial judgment on the pleadings, dismissing a group of hospitals’ COVID-19 business interruption claims. The court held that “[a]lthough Plaintiffs allege the Insured Locations suffered from unbreathable air and surfaces covered in COVID-19, this is not the kind of ‘actual’ change required” under Georgia law. Order at 19. The public health orders and COVID-19 were not physical loss or damage, and the court refused to “blindly accept” that the virus was present at all of the hospitals. Id. at 14. The case is AU Health Sys., Inc. v. Affiliated FM Ins. Co.

On March 15, 2022, the Supreme Court of New York (Kings County) granted various insurers’ motions to dismiss a suit brought by a group of New York City bars and restaurants. Adopting the majority view, the court held “the mere loss of use is insufficient to trigger any coverage for physical loss or physical damage.” Order at 11. The court found “[t]here is no basis to conclude that any restriction of use or even alterations such as installing plexiglass, an admitted inconvenience, somehow supports claims for physical damage.” Id. at 13. The case is Abruzzo Docg Inc. v. Acceptance Indem. Ins. Co.

New Business Interruption Class Actions:

The owner and operator of a restaurant, bar, and event/hospitality service filed a putative class action against the Cincinnati Insurance Company in Wisconsin state court (Milwaukee County) for declaratory judgment, breach of contract, and bad faith. Plaintiff’s “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 16-23. The complaint alleges the plaintiff suffered covered physical property damage or loss due to state civil authority orders and “[t]he continuous presence of coronavirus on or around [plaintiff’s] premises.” Id. at ¶¶ 43-49. The complaint seeks to certify a putative statewide class of “[a]ll restaurants, bars and/or event/hospitality services domiciled, and conducting business, in the State of Wisconsin that have incurred losses and business interruptions due to” state civil authority orders. Id. at ¶ 52. The case is PTG Live Events, LLC v. The Cincinnati Ins. Co.

New Business Interruption Suits Against Insurers:

A group of restaurants sued Erie Insurance Exchange in the Superior Court of the District of Columbia for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. The “all risk” policies allegedly provide income protection, extra expense, and civil authority coverage. Complaint at ¶¶ 30, 35, 36. The Complaint alleges that the COVID-19 virus “intermingled with and contaminated the air and surface of property in the Restaurants” and “physically altered the composition and damaged the air and surfaces of property in the Restaurants.” Id. at ¶¶ 55, 56. The case is Creative Consolidation, LLC, et al. v. Erie Ins. Exch.

A restaurant owner and operator sued Fireman’s Fund Insurance Company in Illinois state court (Cook County) for declaratory relief, breach of contract, and breach of the duty of good faith and fair dealing. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 114, 118. The Complaint alleges that SARS-CoV-2 causes direct physical loss or damage to property because respiratory droplets expelled from infected individuals adhere to surfaces and objects and physically change them to fomites, which “represents a physical change in the affected enclosed space, surface or object, causing severe property loss and damage.” Id. at ¶ 56. The case is EBNB 70 Pine Owner Rest., LLC v. Fireman’s Fund Ins. Co.

The operators of bars, restaurants, and a spa sued Farmers Group Inc., Truck Insurance Exchange, and Mid-Century Insurance Company in California state court (San Francisco County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 37, 51. The Complaint alleges that “[p]rohibiting the physical presence on the premises of all persons (except for those facilitating minimal maintenance) and the prohibition of the physical use of equipment, fixtures and furniture constitutes a physical loss that caused the suspension of business operations.” Id. at ¶ 115. The case is Gentle Star Medspa Med. Corp., et al. v. Farmers Grp., Inc., et al.

A restaurant operator sued State Auto Property and Casualty Insurance Company in Iowa state court (Polk County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business interruption, extra expense, and civil authority coverage. Complaint at ¶ 15. The Complaint alleges that COVID-19 causes direct physical loss of or damage to buildings and properties because it “alter[s] the conditions of properties and buildings such that the premises are physically damaged and no longer safe and habitable for normal use.” Id. at ¶ 48. The case is Grindhouse Rest. Grp. Atlanta LLC v. State Auto Prop. & Cas. Ins. Co.

The operator of quick-service restaurants sued Affiliate FM Insurance Company in federal court (N.D. Cal.) for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. The “all risk” policy allegedly provides communicable disease, business interruption, protection and preservation of property, extra expense, civil authority, and ingress/egress coverage. Complaint at ¶¶ 63, 81, 99, 101, 106, 109. The Complaint alleges that “[w]hile at [the plaintiff’s] properties, infected individuals expelled viral particles that physically changed and altered air and surfaces and rendered insured property unfit for its full insured and intended use.” Id. at ¶ 50. The case is Sar Holdings, Inc. v. Affiliated FM Ins. Co.

A big & tall men’s clothing retailer sued Affiliated FM Insurance Company in Rhode Island state court (Providence/Bristol County) for declaratory judgment and breach of contract. Plaintiff’s “all risk” policy allegedly provides gross earnings, gross profit, civil authority, supply chain, attraction property, protection and preservation of property, decontamination cost, and communicable disease coverage. Complaint at ¶¶ 98-136. The complaint alleges that plaintiff suffered covered physical losses in excess of its communicable disease coverage sublimits due to state civil authority business closure orders and “the actual not suspected [sic] presence of communicable disease” on plaintiff’s property. Id. at ¶ 137. The case is Destination XL Grp., Inc. v. Affiliated FM Ins. Co.

A dance studio and several dental practices sued Sentinel Insurance Company and Hartford Casualty Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiffs’ policies allegedly provide business income, extra expense, and civil authority coverage. Complaint at ¶ 21. The complaint alleges that state civil authority orders caused plaintiffs to suffer covered losses due to “a loss of functionality of their business property.” Id. at ¶¶ 35-36. The case is All That Dance Inc. v. Sentinel Ins Co., Ltd.

A restaurant owner and operator sued Mutual of Enumclaw Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s “all-risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 8, 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss because “Plaintiff was prohibited from using its property for its intended purposes.” Id. at ¶ 29. The case is H&H Enters. Inc. v. Mut. Of Enumclaw Ins. Co.

A bar owner and operator sued Scottsdale Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s “all-risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 8, 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss. Id. at ¶¶ 24-26. The case is Tackle Eligible, Inc. v. Scottsdale Ins. Co.

A restaurant owner and operator sued First Mercury Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss. Id. at ¶¶ 24-26. The case is Reckless Enters. Inc. v. First Mercury Ins. Co.

A massage and skincare franchisee sued Hanover Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss because plaintiff “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 24-27. The case is THY Northwest Enters., Inc. v. Hanover Ins. Co.

A bar owner and operator sued Great Lakes Insurance in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss because plaintiff “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 24-27. The case is 421 1st Ave. S., LLC v. Great Lakes Ins. SE.

A licorice manufacturer sued Sentry Insurance in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss because plaintiff “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 24-27. The case is Kookaburra Licorice Co. v. Sentry Ins. A Mut. Co.

A group of dentists and dental practices sued the Dentists Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policies allegedly provide business income, extra expense, and civil authority coverage. Complaint at ¶ 36. The complaint alleges that state civil authority orders caused plaintiffs to suffer direct physical losses because plaintiffs “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 46-49. The case is Jorgensen v. The Dentists Ins. Co.

A group of dentists, dental practices, and a restaurant owner and operator sued Travelers Casualty Insurance Company of America and the Charter Oak Fire Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiffs’ policies allegedly provide business income, extra expense, and civil authority coverage. Complaint at ¶ 37. The complaint alleges that state civil authority orders caused plaintiffs to suffer direct physical losses because plaintiffs “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 47-50. The case is Akimoto & Zhu, DDS, MSD, PLLC v. Travelers Cas. Ins. Co. of Am.

A group of dentists and dental practices sued Aspen American Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policies allegedly provide business income, extra expense, and civil authority coverage. Complaint at ¶ 20. The complaint alleges that state civil authority orders caused plaintiffs to suffer direct physical losses because plaintiffs “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 30-33. The case is Bandon E. Cooley DDS and Aaron C. Cooley DDS v. Aspen Am. Ins. Co.

A restaurant owner and operator, a chiropractic practice owner and operator, and a group of dentists, dental practices, and a restaurant owner and operator sued Liberty Mutual Insurance Company, American Fire & Casualty Company, Ohio Security Insurance Company, and the Ohio Casualty Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiffs’ policies allegedly provide business income, extra expense, and civil authority coverage. Complaint at ¶ 30. The complaint alleges that state civil authority orders caused plaintiffs to suffer direct physical losses because plaintiffs “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 40-43. The case is Sitting at Vic’s LLC v. Liberty Mut. Ins. Co.

A restaurant owner and operator sued Starr Surplus Lines Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss because plaintiff “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 24-27. The case is Happy Guests Int’l, Inc. v. Starr Surplus Lines Ins. Co.

A bed and breakfast owner and operator sued Oregon Mutual Insurance Company in Washington state court (King County) for declaratory judgment and breach of contract. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 14. The complaint alleges that state civil authority orders caused plaintiff to suffer a direct physical loss because plaintiff “experienc[ed] a loss of functionality of its business property.” Id. at ¶¶ 24-27. The case is Bennett & Logan, LLC v. Or. Mut. Ins. Co.

A group of brewpubs sued Certain Underwriters at Lloyds and Syndicate HIS 033 at Lloyds in New York state court (Kings County) for declaratory relief, breach of contract, and bad faith. The “all risk” policy allegedly contains coverage for business interruption losses, losses due to government orders, decontamination costs, extra expense, and communicable disease. Complaint, ¶ 12. Despite the alleged coverage, the insurers denied coverage without investigating or considering evidence. Id. ¶ 14. The case is Randolph Grp. v. Certain Underwriters at Lloyds.

Lawrence General Hospital sued Continental Casualty Company in Massachusetts state court (Suffolk County) for breach of contract and declaratory relief. Plaintiff allegedly purchased an “all risk” policy. Complaint, ¶ 13. According to plaintiff, it had to close because of direct physical loss and damage to its properties. Id. ¶ 14. It also alleged the coronavirus was present on its property, which led to several governmental orders issuing to prohibit access to the property. Id. ¶¶ 17–19. The case is Lawrence Gen. Hosp. v. Cont’l Cas. Co.

A theatre sued Certain Underwriters at Lloyd’s of London in Louisiana state court (Orleans Parish) for declaratory judgment, breach of contract, and bad faith. The plaintiff claims it purchased an “all risk” insurance policy, which covers business interruption, losses caused by government orders, decontamination costs, extra expense, and loss because of a pandemic. Complaint, ¶¶ 1, 12. According to the theatre, the insurer denied its claim without investigating. Id. ¶ 14. The case is Carver Theatre, LLC v. Certain Underwriters at Lloyd’s of London.

A hotel sued Greater New York Mutual Insurance Company in New York state court (New York County) for declaratory judgment and breach of contract. The hotel alleges it bought an “all risk” policy from the insurer, which includes coverage for business interruption losses, losses caused by government orders, decontamination costs, extra expense, and communicable disease. Complaint, ¶¶ 1, 12. The plaintiff seeks a declaration that the presence of the coronavirus caused direct physical loss or damage, and the insurer is required to pay for the resulting losses. Id. ¶¶ 17, 19. The case is Belnord Hotel Corp. v. Greater N.Y. Mut. Ins. Co.

A hotel owner sued Certain Underwriters at Lloyd’s London, London Subscribing to Policies, Westchester Surplus Lines Insurance Company, HDI Global Insurance Company, Independent Specialty Insurance Company, Interstate Fire & Casualty Company, Allied World Assurance Co., Colony Insurance Company, Brit Global Specialty USA, Landmark American Insurance Company, and Arch Specialty Insurance in New Jersey state court (Cape May County) for declaratory judgment and breach of contract. The policy allegedly provides coverage for business income, extra expense, civil authority, ingress/egress, contagious disease, and attraction properties, as well as a mold, mildew and fungus clause and microorganism exclusion. Complaint, ¶¶ 6–10, 75–76. The insurer relied on the exclusion to deny coverage. Id. ¶ 75. The case is Icona Opportunity Partners 1, LLC v. Certain Underwriters at Lloyd’s.

A hotel sued Strathmore Insurance Company in New York state court (New York County) for declaratory judgment and breach of contract. The “all risk” policy purchased by the hotel allegedly contained coverage for business interruption, extra expense, and communicable disease. Complaint ¶¶ 1, 14. It claims losses for the direct physical impact on its hotel and resulting business losses. Id. ¶ 144. The case is Grand Am. Assocs. LLC v. Strathmore Ins. Co.