Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of October 17, 2022

Courts Dismiss COVID-19 Business Interruption Claims

On October 14, 2022, the district court for the Western District of Pennsylvania dismissed business interruption claims in multidistrict litigation against Erie Insurance Group. The court concluded that “in all jurisdictions whose law applies to the actions in this MDL, ‘direct physical loss of or damage to’ property occurs when a structural alteration to property is evident and that alteration requires that the affected property be repaired, rebuilt, or replaced before the property can be used again.” Order at 41. According to the court, “the COVID-19 virus did not harm [the plaintiffs’] properties in a way so as to generate a loss of or to the property itself, and Plaintiffs have not plausibly pleaded that the situation at their properties was or would be any different.” Id. at 49. The court also rejected the plaintiffs’ contention that they are entitled to coverage under the reasonable expectations doctrine, finding that they did not plausibly plead any misconduct by Erie and that they “did not have a reasonable expectation of coverage based on the ‘all risk’ nature of the Policies or the Policies’ ‘complicated terms.’” Id. at 55-56. The court further found that a virus exclusion in one of the relevant policies “would be enforceable and unambiguously would preclude coverage here.” Id. at 59. The case is In re: Erie COVID-19 Business Interruption Protection Insurance Litigation.

On October 14, 2022, the Western District of Pennsylvania granted Cincinnati Insurance Company’s motion to dismiss a group of consolidated cases brought by dental practices, restaurants, minor league baseball operations organizations, and a salon based on their income losses during the COVID-19 pandemic. The court said that “[e]ven considering on their own and accepting as true Plaintiffs’ allegations that the virus particles can become affixed to and remain stable on surfaces for 3 or 4 hours or for [several] days, and in that way ‘change’ the surfaces, the natural plausible inference from those allegations is that the virus particles dissipate on their own, after those numbers of hours or days have passed, without any human intervention and without any harm to physical property.” Order at 26. When considering the complaint as a whole, there is no “distinct, demonstrable, and physical alteration” of the insured property to the point where “its function is nearly eliminated or destroyed, or . . . made useless or uninhabitable.” Id. at 27. Even though the businesses had to shut down or limit their operations when the pandemic started, the virus did not affect them any differently than “essential” businesses, like grocery stores or hospitals, which stayed open the entire time and were never considered uninhabitable. Id. at 27–28. The case is Betty Jo Hirschfield-Louik, DMD v. Cincinnati Insurance Co.

On October 5, 2022, the Supreme Court of the State of Delaware affirmed the dismissal of a COVID-19 business interruption claim filed by the owner of family entertainment centers and water parks.  The Supreme Court adopted the judgment and opinion of the Superior Court, which rejected the insured’s contention that the policy’s Pollution and Contamination Exclusion was limited to “traditional environmental pollution or contamination” and held that the exclusion unambiguously applied to viruses that cause or threaten damage to human health. Order at 15-16. The case is APX Operating Co., LLC v. HDI Global Ins. Co.

On October 11, 2022, the Eleventh Circuit affirmed the dismissal of a grocery store’s COVID-19 related business interruption class action complaint. It relied on its decision in SA Palm Beach LLC v. Certain Underwriters at Lloyd’s London, 32 F.4th 1347, 1350, 1359–63 (11th Cir. 2022) and held that Florida law does not extend insurance coverage to COVID-19 related business losses and expenses because they do not cause “tangible alteration of the insured properties.” Order at 6. The case is 15 Oz Fresh & Healthy Foods LLC v. Underwriters at Lloyd’s London Known as Syndicates AML 2001.