Insurers’ COVID-19 Notepad: What You Need to Know Now, Week of September 6, 2021

Eleventh Circuit Affirms Dismissal of COVID-19 Business Interruption Claim

On August 31, 2021, in the second federal court of appeals ruling on COVID-related business interruption claims, the U.S. Court of Appeals for the Eleventh Circuit joined the Eighth Circuit in rejecting coverage and affirmed the Northern District of Georgia’s dismissal of a dentistry’s COVID-19 business interruption claim. The appeals court determined that the policyholder “alleged nothing that could qualify, to a layman or anyone else, as physical loss or damage,” as the “shelter-in-place order that [the policyholder] cites did not damage or change the property in a way that required its repair or precluded its future use for dental procedures.” Opinion at 6. The case is Gilreath Family & Cosmetic Dentistry, Inc. v. The Cincinnati Insurance Company.

Courts Dismiss COVID-19 Business Interruption Claims

On August 23, 2021, the district court for the Northern District of California granted Lexington Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by an Indian tribe and its gaming authority. According to the court, “the presence of COVID-19 would not trigger coverage,” Order at 18, the plaintiffs failed to “plead a ‘causal physical event’ for the loss,” because “the presence of a virus, which can be eliminated through cleaning and disinfecting, would not constitute a ‘physical event’ that caused the loss,” id., and the plaintiffs failed to plead any unsatisfactory condition “that would be fixed through repair, replacement, or rebuild.” Id. at 19.  The case is Menominee Indian Tribe of Wisconsin, et al. v. Lexington Ins. Co., et al.

On August 23, 2021, the district court for the Eastern District of Pennsylvania granted Valley Forge Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the operator of a photography business. The court concluded that the clear language of the policy “only covers losses due to physical damage or loss” and that “COVID-19 has not led to the physical loss of or damage to [the insured’s] property.” Order at 1 (emphasis in original). The case is JMR Holdings, LLC v. Valley Forge Ins. Co.

On August 26, 2021, the district court for the Eastern District of Missouri granted West Bend Mutual Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the owner and operator of salon franchises. The court concluded that under the plain meaning of the policy the plaintiff’s “decision to close the salons did not constitute ‘direct physical loss of’ its property” as “[n]othing physical happened to the salons.” Order at 7. The court rejected the plaintiff’s contention that it suffered a loss of its properties since it was unable to use the properties for salon services, finding such a reading “too strained and against the policy’s plain meaning.” Id. at 8. The case is Gateway Clippers Holdings LLC v. West Bend Mut. Ins. Co.

On August 26, 2021, relying on the plain language of the applicable virus exclusion, the district court for the District of New Jersey granted Indemnity Insurance Company of North America’s motion for judgment on the pleadings for a restaurant’s business income claims related to the coronavirus. Order at 9–10. The case is Beniak Enterprises, Inc. v. Indem. Ins. Co. of North Am.

On August 26, 2021, the district court for the District of Massachusetts granted a motion to dismiss the Cheers bar operator’s COVID-19 business interruption complaint filed by Fireman’s Fund Insurance Company, Associated Indemnity Corporation, and Allianz Global Risk United States Insurance Company. According to the court, the presence or threat of the coronavirus does not equate to direct physical loss or damage, even if government orders render the property unusable. Order at 14, 16. While the coronavirus may be physical, the court held the loss or damage must also be physical. Id. at 11. The court found no “factual, non-conclusory allegations” that the virus was actually present on the property. Id. at 15. Instead, the court found the policyholder could attribute its losses to the government orders, which restricted service to takeout and delivery, rather than the presence of the virus. Id. at 19. The case is Hampshire House Corp. v. Fireman’s Fund Ins. Co., et al.

On August 31, 2021, the district court for the Eastern District of Tennessee granted Cincinnati Insurance Company’s, Cincinnati Casualty Company’s, and Cincinnati Indemnity Company’s motion to dismiss a COVID-19 business interruption claim filed by the owner and operator of a dentistry. The court concluded that the plain meaning of the phrase “physical loss or damage” meant that the policy “provides coverage for material, perceptible harm to the insured property, whether in whole or in part.” Order at 8. “In other words, the Policy unambiguously requires some form of tangible harm to the insured property to invoke coverage.” Id. Thus, the court found that the plaintiff failed to plausibly allege “physical loss or damage” to property “by virtue of COVID-19 and the Executive Orders.” Id. at 15. The case is SFDG LLC v. The Cincinnati Ins. Co., et al.

On August 31, 2021, the district court for the Southern District of New York granted National Fire Insurance Company of Hartford’s motion to dismiss a COVID-19 business interruption claim filed by the operator of a marketing and advertising agency. The court concluded that the plaintiff’s loss of use of its property did not establish a direct physical loss or damage under the policy, because the only basis for its assertion that COVID-19 intruded upon its property was “its assumption that because its offices are in high-density office buildings, COVID-19 must be present there.” Order at 7. Moreover, even assuming it could adequately allege the presence of COVID-19, the plaintiff’s claim failed to state a claim, as “neither ‘direct physical loss’ or ‘direct physical damage’ include ‘loss of use.’” Id. at 10. The case is Gammon & Assocs. Inc. v. Nat’l Fire Ins. Co. of Hartford.

On August 31, 2021, the district court for the Southern District of Florida granted Certain Underwriters at Lloyd’s London’s motion to dismiss an amended class action complaint filed by a Miami restaurant operator for COVID-19 business income related losses. According to the court, government restrictions relating to the pandemic did not show physical damage under the policy. Order at 8. The court held the policyholder did not show how the presence of the virus constituted physical loss, noting that the changes and remodeling the policyholder conducted did not amount to the physical changes contemplated under the plain meaning of the policy. Id. at 7. The case is Sun Cuisine, LLC v. Certain Underwriters at Lloyd’s London.

On August 31, 2021, the district court for the District of Maryland granted Affiliated FM Insurance Company’s motion to dismiss a real estate developer’s COVID-19 related business interruption complaint. To trigger coverage, the court held that the properties needed to be “physically or structurally altered or rendered uninhabitable or unusable by the virus.” Order at 28. According to the court, the plaintiff did not allege the virus was present on the properties, that the properties changed or required repairs, or that the properties were uninhabitable or unusable because of the virus. Id. at 30. Thus, the court found that even had the virus been present, the plaintiff alleged no facts to support the conclusion that the virus compromised, harmed, or destroyed the physical integrity of the properties or that it “nearly eliminated their functionality.” Id. The case is The Cordish Cos., Inc. v. Affiliated FM Ins. Co.

On September 1, 2021, the district court for the Southern District of Florida granted Zurich American Insurance Company’s motion to dismiss a reception venue’s COVID-19 business interruption complaint. The court found the policyholder’s “conclusory statement” that the coronavirus made its property “uninhabitable and unsuitable” did not show actual physical change to the property. Order at 11–12. That the closure orders stated that the virus physically caused property damage were irrelevant because it “is not a statement of Florida insurance law, is not a judicial or administrative finding, and is not binding on this court.” Id. at 11. Finally, loss of use did not constitute “direct physical loss,” which requires “actual, concrete damage” under Florida law and the Eleventh Circuit decision in Mama Jo’s v. Sparta Insurance Company. Id. at 10. The case is Map Legacy, Inc. v. Zurich Am. Ins. Co.

On September 3, 2021, the district court for the Eastern District of Wisconsin granted West Bend Mutual Insurance Company’s motion to dismiss a preschool’s proposed class action complaint alleging business income losses related to COVID-19. The court held that “inhabitability and inability to use its property for its intended purpose do not equate to ‘physical loss of or damage to’ property” and noted that the policyholder’s interpretation was “extremely tortured.” Order at 13. “COVID-19’s being physical does not mean that it caused physical loss of or damage to Plaintiff’s property.” Id. at 14. The case is Little Ones Preschool Inc. v. West Bend Mut. Ins. Co.

New Business Interruption Suits Filed by Insurer:

Westport Insurance Corporation sued Vulcan Inc., the owner of technology and event companies, for declaratory judgment, breach of contract, and injunctive relief in New York state court (New York County). The policy allegedly provides coverage for attraction property, civil authority, ingress/egress, extra expense, contingent time element, and interruption by communicable disease. Complaint at ¶ 31. It also includes exclusions for loss of use. Id. The insurer alleges the coronavirus and corresponding government orders do not constitute direct physical loss or damage. Id. at ¶ 34. The case is Westport Ins. Corp. v. Vulcan Inc.

New Business Interruption Suits Against Insurers:

The owners and operators of dental practices sued Cincinnati Insurance Company, Cincinnati Indemnity Company, Cincinnati Casualty Company, and Cincinnati Specialty Underwriters Insurance Company in federal court (N.D. Ill.) for declaratory relief, breach of contract, and bad faith. The “all risk” policy allegedly provides business interruption, extra expense, and civil authority coverage. Complaint at ¶¶ 29, 39, 41. The Complaint alleges that the “continuous presence of the coronavirus amongst the public, and on or around Plaintiffs’ premises, rendered the premises unsafe and unfit for their intended use and therefore, caused both a risk of physical loss and caused direct physical loss under the Policy.” Id. at ¶ 46. The case is Naperville Dental Specialists & Gen. Oral Health Care, P.C., et al. v. The Cincinnati Ins. Cos., et al.

The owners and operators of dental practices sued Cincinnati Insurance Company, Cincinnati Indemnity Company, Cincinnati Casualty Company, and Cincinnati Specialty Underwriters Insurance Company in federal court (N.D. Ill.) for declaratory relief, breach of contract, and bad faith. The “all risk” policy allegedly provides business interruption, extra expense, and civil authority coverage. Complaint at ¶¶ 29, 39, 41. The Complaint alleges that COVID-19 closure orders “prohibited the Plaintiffs from providing virtually all of their ordinary and customary dental services, and prohibited the public from accessing Plaintiffs’ offices, thereby causing the necessary suspension of their operations and triggering the Business Income Loss and Civil Authority coverage under the Policy.” Id. at ¶ 49. The Complaint further alleges that if the insurer “had wanted to exclude pandemic-related losses under the Plaintiffs’ policy—as many other insurers have done in other policies—it easily could have attempted to do so on the front-end with an express exclusion.” Id. at ¶ 15. The case is Sherif Albert DDS, P.C., et al. v. The Cincinnati Ins. Cos., et al.

A restaurant and retail operator sued Certain Underwriters at Lloyd’s London, HDI Global Specialty SE, and Indian Harbor Insurance Company in South Carolina state court (Beaufort County) for breach of contract and bad faith. The “all risk” policy allegedly provides business interruption coverage and no exclusion barring coverage. Complaint at ¶¶ 13, 46-47. The plaintiff alleges there has been a “suspension” of “operations” “caused by direct physical loss of or damage to property” caused by the coronavirus and related state orders. Id. ¶ 16. According to the plaintiff, the potential presence of the coronavirus constitutes direct physical loss to property, and people present on the property infected with the virus render the property unsafe and unusable and causing business interruption loss. Id. ¶¶ 40-41. The case is Shoogie Shack LLC v. Certain Underwriters at Lloyd’s, London, et al.