Insurers' COVID-19 Notepad: What You Need to Know Now (Week of October 26)

Federal Court in Missouri Dismisses COVID-19 Rebate Claim

On October 22, 2020, the U.S. District Court for the Western District of Missouri granted State Farm’s motion to dismiss a COVID-19 business interruption rebate claim filed by a florist shop in Missouri. The Florist alleged the Policy obligated State Farm to reduce premiums in response to reduced business activity because: (1) the insurer reserved its right to raise premiums, indicating the Policy is subject to change, (2) the Policy required the insurer to perform a premium audit during the policy period and return unearned premiums, and (3) the Policy required the insurer to return any premium credit owed to policyholders. The court agreed that the allegations challenged insurance rates and the rating system, and must therefore be brought before the Missouri Department of Insurance to exhaust administrative remedies before bringing any suit.

Federal Courts Dismiss COVID-19 Business Interruption Claims

On October 21, 2020, the United States District Court for the Southern District of Alabama granted Continental Casualty Company’s motion to dismiss a COVID-19 business interruption claim filed by an optometrist office in Mobile, Alabama. The court found that the plaintiff had not alleged that state closure orders caused a direct physical loss of its property under Alabama law because the complaint did not allege that there was “complete and permanent disposition of plaintiff’s property” or that the “temporary inability to use property due to governmental intervention constituted a direct loss of physical property.” In particular, the court found that (1) “a reasonable insured would not understand the policy language to cover plaintiff’s purely economic losses incurred as a consequence of the [state closure] Order,” and (2) “a reasonable insured would not understand” the state’s second order allowing all medical procedures to resume “to constitute a ‘repair’ under the policy.” The court also declined to certify the question of whether the plaintiff suffered a direct physical loss of its property to the Alabama Supreme Court.

On October 16, 2020, the U.S. District Court for the District of Minnesota granted IMT Insurance Company’s motion to dismiss a hair salon’s COVID-19 business interruption claim. The court concluded that the plaintiff could not allege direct physical loss under the terms of the policy based on an alleged inability to provide haircuts and salon services due to COVID-19 closure orders because it could not allege facts showing the property was actually contaminated or damaged by the coronavirus. Order at 7-8. The court further concluded that the policy’s Virus or Bacteria Exclusion barred coverage for the plaintiff’s claims. Id. at 10-11.

On October 19, 2020, the U.S. District Court for the Central District of California granted Travelers’ motion to dismiss a law firm’s COVID-19 business interruption claim. The court concluded that the policy’s virus exclusion explicitly excluded the law firm’s claim for civil authority coverage and that it failed to allege physical damage for purposes of its business interruption claim, where it conceded that the coronavirus was never physically detected at its property, because losses from an inability to use property do not amount to physical loss of or damage to property under California law. Order at 6-7.

Insurers Drop Appeal of Some Wordings in FCA COVID-19 Test Case

Six insurers – RSA Insurance Group, QBE Insurance Group, Hiscox, MS Amlin PLC, Argenta Holdings, and Arch Insurance Group – dropped their appeals of the London High Court’s ruling in The Financial Conduct Authority (FCA) v. Arch et al., the FCA “test case,” with respect to certain policies under which the court ruled policyholders should be paid. While appeals related to the Resilience, Eaton Gate Retail, and Eaton Gate Pubs & Restaurants policies were dropped, the insurers are continuing to appeal the High Court’s ruling concerning the Cottagesure and Eaton Gate Commercial Combined policies.

New Business Interruption Class Actions:

A digital marketing company filed a class action complaint against Sentinel Insurance Company in federal court (D. Conn.) for declaratory relief. The “all risk” policy allegedly provides business income, extra expense, civil authority, and business income from dependent properties coverage. Complaint at ¶ 1. The Complaint alleges that the “presence of COVID-19 particles renders physical property unsafe and impairs its value, usefulness, and/or normal function, causing direct physical harm to property and resulting in direct physical loss and physical damage to property.” Complaint at ¶ 35. The insurer allegedly “systematically denied and continues to deny and refuse to provide payment for insurance claims for coverage for similar losses and expenses by insureds holding policies that are, in all material respects, identical.” Id. at ¶ 3.

A music venue filed a class action complaint against Cincinnati Insurance Company in federal court (N.D. Ill.) for declaratory relief, breach of contract, bad faith, unjust enrichment, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 31-32. The Complaint alleges that COVID-19 closure orders “caused both property loss and property damage by directly, physically impairing the functionality of Plaintiffs’ property and dispossessing Plaintiffs of their tangible spaces.” Id. at ¶ 45. The insurer allegedly “designed and executed, in bad faith, a systematic and consistent form and cursory denial of all claims, such as Plaintiffs’ claims, in order to avoid paying Defendant’s obligations under the Policy.” Id. at ¶ 37. The proposed class is defined as “all businesses in the United States who are insureds of Defendant under commercial insurance policies and who have experienced a complete or partial shutdown of their business operations as a result of a Closure Order issued by a State or local governmental authority on or after March 1, 2020, to the present. Id. at ¶ 119.

A university filed a class action complaint against Zurich American Insurance Company in federal court (E.D. Mo.) for declaratory relief. The “all risk” policy allegedly provides time element, extra expense, civil authority, ingress and egress, and decontamination coverage. Complaint at ¶¶ 73-77. The Complaint alleges that the “presence of COVID-19 on property and in the air at property effectively eliminates the utility and habitability of such property sufficient to constitute direct physical loss of or damage to property within the meaning of the Policy.” Id. at ¶ 22. The proposed nationwide class is defined as “[a]ll institutions of higher education that are covered by one of the Defendant’s policies in effect during the COVID-19 pandemic.” Id. at ¶ 79. 

A dental practice filed a class action complaint against The Hartford and Sentinel Insurance Company in federal court (D.N.J.) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, civil authority, and limited fungi, bacteria or virus coverage. Complaint at ¶¶ 4, 5. The Complaint alleges that the COVID-19 pandemic “renders the Covered Property unsafe, uninhabitable, or otherwise unfit for its intended use, which constitutes direct physical loss.” Id. at ¶ 58. The insurers have allegedly “on a widespread and uniform basis, refused to compensate their insureds under their Business Income Coverage and Civil Authority Coverage . . . for losses incurred due to the COVID-19 pandemic, or due to any orders by civil authorities requiring the suspension or curtailment of insureds’ businesses.” Id. at ¶ 10.

The owner and operator of a restaurant chain filed a class action complaint against Cincinnati Insurance Company in Ohio state court (Hamilton County) for declaratory relief, breach of contract, and violation of Ohio’s Deceptive Trade Practices Act. The “all risk” policy allegedly provides business income, extended business income, extra expense, and civil authority coverage. Complaint at ¶ 3. The Complaint alleges that the presence of COVID-19 in the air and on the surfaces of the plaintiff’s restaurants “occasioned direct physical damage and direct physical loss.” Id. at ¶ 26. The insurer is alleged to have “uniformly refused to pay their insureds for losses suffered due to mandatory business closures required by executive orders issued by civil authorities in response to the COVID-19 pandemic.” Id. at ¶ 7. The proposed class is defined as “[a]ll persons and entities in Ohio with Business Income, Extended Business Income, Extra Expense, and/or Civil Authority coverage under an insurance policy issued by Defendant that suffered a suspension of some or all business at the premises covered by the policy due to COVID-19 and/or an order similar to those issued by the Director of Ohio’s Department of Health in response to the COVID-19 pandemic.” Id. at ¶46.

New Business Interruption Suits Against Insurers:

The owner of a restaurant/diner in Pennsylvania sued Nationwide General Insurance Company and Nationwide Mutual Insurance Company in federal court (E.D. Pa.), asserting claims for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶23-25. The policy also contains an exclusion for “loss or damage caused by or resulting from any virus, bacterium or other microorganism.” Id. at ¶¶68-69. The Complaint alleges that the defendant wrongfully denied the plaintiff’s claim for coverage. Id. at ¶¶102-103.

The owner of a retail jewelry store in Houston sued Certain Underwriter’s at Lloyd’s, London in federal court (S.D. Tex.), asserting claims for breach of contract, declaratory relief, injunctive relief, bad faith violation of the Texas Insurance Code, and violation of the Texas Prompt Payment of Claims statute. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 4. The policy does not contain a virus exclusion. Id. at ¶77. The Complaint alleges that the defendant wrongfully denied the plaintiff’s claim for coverage. Id. at ¶21.

The owner of a bakery in Seattle sued Sentinel Insurance Company in Washington state court (King County), asserting claims for breach of contract, bad faith, violation of the Washington Administrative Code, violation of the Washington Insurance Fair Conduct Act, and violation of the Washington Consumer Protection Act. The policy at issue allegedly provides business income, extra expense, civil authority, and food contamination coverage. Complaint at ¶¶ 2.10-2.12, 2.55. The Complaint alleges that the defendant denied the plaintiff’s claim for coverage. Id. at ¶¶2.57-2.58.

The owners of two bakeries in Seattle sued Sentinel Insurance Company in Washington state court (King County), asserting claims for breach of contract, bad faith, violation of the Washington Administrative Code, violation of the Washington Insurance Fair Conduct Act, and violation of the Washington Consumer Protection Act. The policy at issue allegedly provides business income, extra expense, civil authority, and food contamination coverage. Complaint at ¶¶ 2.10-2.12, 2.55. The Complaint alleges that the defendant has not responded to the plaintiff’s claim for coverage. Id. at ¶¶2.57-2.58.

The owner of a bakery, food truck, and catering service in Seattle sued Sentinel Insurance Company in Washington state court (King County), asserting claims for breach of contract, bad faith, violation of the Washington Administrative Code, violation of the Washington Insurance Fair Conduct Act, and violation of the Washington Consumer Protection Act. The policy at issue allegedly provides business income, extra expense, civil authority, and food contamination coverage. Complaint at ¶¶ 2.10-2.12, 2.52. The Complaint alleges that the defendant has wrongfully denied the plaintiff’s claim for coverage. Id. at ¶¶2.57-2.58.

The owner of a restaurant sued Certain Underwriters at Lloyd’s, London in Florida state court (Broward County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 5-7. The Complaint alleges that the presence of coronavirus “caused direct physical loss of and/or damage to the covered premises under the Policy by, among other things, damaging the property, denying access to the property, preventing customers from physically occupying the property, causing the property to be physically uninhabitable by customers, causing its function to be nearly eliminated or destroyed, and/or causing a suspension of business operations on the premises.” Id. at ¶ 45.

The owner of a restaurant sued Certain Underwriters at Lloyd’s, London in Florida state court (Palm Beach County) for breach of contract and declaratory relief. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶5-7. The Complaint alleges that the presence of coronavirus caused direct physical loss of and/or damage to property by “damaging the property, denying access to the property, preventing customers from physically occupying the property, causing the property to be physically uninhabitable by customers, causing its function to be nearly eliminated or destroyed, and/or causing a suspension of business operations on the premises.” Id. at ¶ 45.

The owner of a restaurant sued Certain Underwriters at Lloyd’s, London in Florida state court (Palm Beach County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶5-7. The Complaint alleges that the plaintiff suffered a covered cause of loss due to the suspension of its business operations caused by COVID-19 closure orders that prohibited access to the covered premises and the surrounding area. Id. at ¶ 46.

The owner of a restaurant sued Certain Underwriters at Lloyd’s London in Florida state court (Palm Beach County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 5-7. The Complaint alleges that it suffered covered losses due to COVID-19 closure orders and that the insurer chose not to include a virus exclusion in the policy. Id. at ¶ 34.

The owner of a restaurant sued Certain Underwriters at Lloyd’s, London in Florida state court (Palm Beach County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 5-7. The Complaint alleges that “COVID-19 caused direct physical loss of and damage to the insured premises, resulting in the suspension of business operations at the premises” and that the insurer wrongfully denied the plaintiff’s claim. Id. at ¶¶ 38, 59.

The owner of a restaurant sued Certain Underwriters at Lloyd’s London in Florida state court (Palm Beach County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 5-7. The Complaint alleges that the insurer chose not to attach a virus exclusion to its policy and that the “presence of COVID-19 caused direct physical loss of and/or damage to the covered premises under the Policy by, among other things, damaging the property, denying access to the property, preventing customers from physically occupying the property, causing the property to be physically uninhabitable by customers, causing its function to be nearly eliminated or destroyed, and/or causing a suspension of business operations on the premises.” Id. at ¶¶ 34, 45.

A restaurant and catering business sued Nationwide Insurance Company of America in Florida state court (Hillsborough County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 5. The Complaint alleges that the policy’s virus exclusion does not bar coverage for losses resulting from Florida’s COVID-19 closure orders, because the plaintiff does not allege that insured property was specifically affected by the COVID-19 virus and the exclusion is ambiguous and, therefore, “should be considered as only excluding costs when a virus or bacteria affects the interior of the insured property or affects the produce of the insured.” Id. at ¶¶ 38, 39.

A wholesaler, importer, distributor, and seller of footwear sued Chubb Limited and ACE Property and Casualty Insurance Company in federal court (S.D.N.Y.) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶ 18. The Complaint alleges that the COVID-19 pandemic “caused direct physical loss of or damage to the Insured Premises under the Policy by rendering the Insured Premises unsafe, uninhabitable, and causing a necessary suspension of operations,” id. at ¶ 70, and that the policy’s virus exclusion is inapplicable because losses were caused by the entry of New York’s COVID-19 closure orders, not by a virus. Id. at ¶¶ 32-33.