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Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of September 12, 2022

September 13, 2022

Jury Finds for Policyholder in COVID-19 Business Interruption Claim

On September 2, 2022, a Texas jury gave policyholders a rare victory, issuing a verdict in favor of the Baylor College of Medicine on its COVID-19 business interruption claim, finding Covid-19 caused property damage, and valuing the school’s losses at $48M. The case is Baylor Coll. of Med. v. XL Ins. Of Am.

Courts Dismiss COVID-19 Business Interruption Claims

On September 2, 2022, the Ninth Circuit affirmed the dismissal of a restaurant group’s COVID-19 business interruption claim. The court held that the policyholder was not entitled to coverage under the policy’s civil or military authority coverage because the closure orders that allegedly caused its losses “were issued in an effort to halt the spread of COVID-19,” Opinion at 5, and that it was not entitled to coverage “under the direct physical loss or damage policy provisions” because any loss based upon the presence of infected individuals “does not entail a ‘physical alteration of property’ and therefore does not qualify as direct physical damage or loss” and because the contamination exclusion would bar coverage to the extent “infected persons contaminated the property or that virus was otherwise present.” Id. The case is Out West Restaurant Grp., Inc., et al. v. Affiliated FM Ins. Co.

On September 2, 2022, the Court of Appeal of California affirmed judgment on the pleadings for Oregon Mutual Insurance Company on a restaurant’s COVID-19 business interruption complaint. Based on a “wall of precedent,” the court held that the coronavirus’ presence does not create physical loss or damage to property. Order at 19. Even though the virus “has a physical presence” and the plaintiff “may have suffered economic loss from the physical presence of the COVID virus, it has not suffered ‘direct physical loss of or damage to [its] property.’” Id. at 17–18. The “period of restoration” also supports that some type of repair or replacement must take place for physical loss to occur. The case is Apple Annie, LLC v. Oregon Mutual Insurance Co.

On August 25, 2022, the Court of Appeal of California reversed the judgment of a trial court, finding a nail salon alleged sufficient facts to trigger a civil authority endorsement and holding that a mold exclusion did not bar coverage. The policy’s civil authority endorsement said the insurer will pay for lost business income “caused by interruption of business due to ‘Civil Authority Action’ that requires evacuation of the” insured property. Order at *2. The court said “evacuation” was “broad enough to encompass the public health orders that required” non-essential businesses to close to prevent the spread of the coronavirus. Id. at *5. The mold exclusion did not “conspicuously, plainly, and clearly” exclude coverage for losses caused by public health orders related to a pandemic, the court said. Id. at *7. The case is Butter Nails & Waxing, Inc. v. Underwriters at Lloyd’s, London.

On August 29, 2022, the Court of Common Pleas of Philadelphia County, Pennsylvania granted Everest National Insurance Company’s motion for summary judgment on a bowling alley’s COVID-19 business interruption claim. The court found that the policy’s virus exclusion barred coverage, as the exclusion was “entirely unambiguous, and clearly and explicitly contemplates that any alleged losses, whether physical damage, loss of use or loss of income, as well as if the alleged loss or damage stems from civil authority orders, is precluded if caused by or resulting from any virus.” Order at 3. The case is V&S Elmwood Lanes, Inc. v. Everest Nat’l Ins. Co.

On September 2, 2022, the district court for the District of Connecticut granted Aspen American Insurance Company’s motion to dismiss a hotel operator’s COVID-19 business interruption claim. The court found the plaintiff failed to allege any “physical loss of or damage to” property, because that phrase “connotes a negative alteration in the tangible condition of property” and it does not extend “to mere loss of use of a premises, where there has been no physical damage to such premises.” Order at 10 The case is 147 First Realty LLC v. Aspen Am. Ins. Co.

On September 6, 2022, the district court for the District of Columbia granted Factory Mutual Insurance Company’s motion to dismiss a university’s COVID-19 business interruption claim. The court “disagree[d] with plaintiff’s attempt to read the word ‘physical’ out of the policy,” citing “an overwhelming majority of courts nationwide” holding that loss of use is not physical loss or damage. Order at 6. The court instead held that the plaintiff could not satisfy “the threshold requirement for coverage under the insurance policy because COVID-19 does not cause ‘physical loss or damage’ to property.” Id.  at 11. The case is George Washington Univ. v. Factory Mut. Ins. Co.

On September 1, 2022, the district court for the Eastern District of Pennsylvania granted Travelers Property Casualty Company of America’s motion to dismiss a law firm’s COVID-19 business interruption claim.  “Given the weight of the precedent supporting the notion that Defendant’s virus exclusion bars business income, civil authority, and extra expense coverage,” the court held the plaintiffs failed to state a claim. Order at 3 n.1. The case is Kimmel & Silverman, P.C. v. Travelers Prop & Cas. Co. of Am.

New Business Interruption Suits Against Insurers:

A hotel franchise sued Certain Underwriters at Lloyd’s of London, Interstate Fire & Casualty Company, and Independent Specialty Insurance Company in Nevada state court (Clark County) for breach of contract, breach of the implied covenant of good faith and fair dealing, violations of the Texas Insurance Code, violations of the Nevada Unfair Claims Practices Act, and declaratory judgment. The plaintiff’s policy allegedly provides coverage for business interruption, extra expense, civil or military authority, ingress/egress, and contagious diseases. Complaint ¶ 21. The plaintiff claims the policies “are not premised on ‘direct physical loss or damage’” to property. Id. ¶ 22. According to the plaintiff, its losses were a result of the pandemic, coronavirus, and related civil authority orders. Id. ¶¶ 23–34. The case is G6 Hospitality, LLC v. Certain Underwriters at Lloyd’s of London Subscribing Policy No. PRPNA2000673.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Laura Foggan
Partner – Washington, D.C.
Phone: +1.202.624.2774
Adam J. Singer
Associate – Washington, D.C.
Phone: +1.202.688.3508
Rachel A. Jankowski
Associate – Washington, D.C.
Phone: +1.202.624.2647
Samuel H. Ruddy
Associate – Washington, D.C.
Phone: +1.202.624.2564