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

Courts Dismiss COVID-19 Business Interruption Claims

On September 13, 2022, the Oklahoma Supreme Court reversed a district court’s grant of summary judgment to a Native American tribe on its COVID-19 business interruption claim. Noting that “nearly all jurisdictions deciding this issue in the context of COVID-19 business interruption claims have found that ‘direct physical loss or damage’ is not ambiguous,” the court “follow[ed] those jurisdictions” and held the tribe’s losses were not covered because implementation of COVID-19 mitigation measures at its properties “constitute[d] measures to stop the spread of the virus from one person to another, not repairs to or replacement of damaged or lost property.” Opinion at 13, 17-18. The case is Cherokee Nation v. Lexington Ins. Co.

On September 9, 2022, the Sixth Circuit affirmed the dismissal of a restaurant chain’s COVID-19 business interruption claim. The court rejected the plaintiff’s claim for civil authority coverage because state stay-at-home orders “were prophylactic measures intended to curb generally the spread of COVID-19 statewide, not to respond to exposure [at plaintiff’s] restaurants.” Opinion at 6. The court also held that the reasonable-expectations doctrine did not require coverage because “[n]o ambiguity exists” in the policy, “meaning it would not be reasonable for [plaintiff] to expect coverage under the policy here.” Id. at 8. Finally, the court rejected the claim for business income coverage because “because neither the pandemic nor the government shutdown orders caused a direct physical loss to the insured’s property.” Id. at 9 (internal quotation marks omitted) (quoting Estes v. Cincinnati Ins. Co., 23 F.4th 695, 702 (6th Cir. 2022)). The case is Wild Eggs Holdings, Inc. v. State Auto Prop. & Cas. Ins. Co.

On September 16, 2022, the Appellate Court of Illinois affirmed the dismissal of a restaurant and bar owner and operator’s COVID-19 business interruption claim. The court found that the plaintiff’s “ma[d]e precisely the same arguments that the plaintiffs made (and which we rejected)” in State & 9 Street Corp. v. Soc’y Ins., 2022 IL App. (1^st 211222-U). Opinion at 6. The case is Lodge Mgmt. Corp. v. Soc’y Ins.

On September 12, 2022, the district court for the Middle District of North Carolina granted Travelers Indemnity Company of America’s motion to dismiss a non-profit college’s COVID-19 business interruption claim. The court concluded that the plaintiff did not plausibly plead a loss of business income caused by “direct physical loss of or damage to property” because a physical loss “unambiguously requires that an insured suffer actual harm to property, rather than some inability to fully utilize property” and the plaintiff “did not allege any physical damage to its property.” Order at 6. The case is Guilford College v. Travelers Indem. Co. of Am.

On September 13, 2022, the Supreme Court of New York, County of New York, granted American Home Assurance Company’s motion to dismiss an airline’s COVID-19 business interruption claim. The court concluded that the plaintiff failed to identify “a physical change or damage” to its “property itself outside of the presence of the virus” and therefore failed to state a claim, because “[t]he terms direct and physical, as it pertains to damage, loss of property under an insurance policy, requires the showing of actual loss of property not simply the inability to use it.” Order at 36. The court further found that “the policy expressly excludes loss caused directly or indirectly by viruses that harm human health,” which was “an additional reason to dismiss this complaint.” Id. at 37. The case is Spirit Airlines, Inc. v. Am. Home Assurance Co.

On September 13, 2022, a Florida circuit court (Miami-Dade County) granted several insurers’ motions to dismiss a property management’s COVID-19 business interruption complaint. The court said it conducted its diligence, researched the issue, and had been fully advised in coming to its decision. Order at 2. The case is IMC Property Management and Maintenance, Inc. v. Westchester Surplus Lines Insurance Co.

On September 8, 2022, the district court for the District of South Carolina granted Twin City Fire Insurance Company and Sentinel Insurance Company’s motion to dismiss two restaurants’ putative COVID-19 business interruption class action. The court found the virus exclusion unambiguously excluded coverage and that the plaintiffs “d[id] not plausibly allege that Covid-19 caused physical loss or physical damage to covered property within the plain meaning of those terms.” Order at 9, 11. The court also held civil authority coverage did not apply because there was no plausible allegation of a covered cause of loss to property in the immediate area of plaintiffs’ premises, and access to plaintiffs’ properties was not specifically prohibited by a civil authority order. Id. at 13. The case is Black Magic, LLC v. Twin City Fire Ins. Co.