Insurance / Reinsurance


Insurers' COVID-19 Notepad: What You Need to Know Now (Week of February 8)


Courts Dismiss COVID-19 Business Interruption Claims

On February 4, 2021, the federal district court for the Eastern District of Michigan granted in part and denied in part West Bend Mutual Insurance Company’s motion to dismiss a hair salon’s COVID-19 business interruption claim. While the court found that the plaintiff’s allegation that it has been unable to use its property for its intended purpose due to COVID-19 particles infecting the property and exposing staff and patrons was sufficient to survive a motion to dismiss “when the Policy states that it will cover ‘direct physical loss or damage’ that does not define ‘loss’ or ‘damage’ to exclude loss of use,” Order at 5, the court nonetheless concluded that business income, extra expense, and civil authority coverage was barred by the policy’s virus and consequential loss exclusions. Id. at 7-8. The plaintiff’s additional claim for communicable diseases coverage survived the motion to dismiss.

On February 4, 2021, the district court for the Middle District of Florida granted Zurich American Insurance Company’s motion to dismiss First Watch Restaurants, Inc.’s COVID-19 business interruption claims for over 400 of the brunch chain’s locations. The court held the restaurants did not allege concrete property damage, finding that, under controlling Eleventh Circuit precedent, a business interruption from the coronavirus “is a purely economic loss, not the kind of physical loss contemplated by insurance policies.” Order at 8. According to the court, the business losses must stem from a physical problem with the property. Id. Because the plaintiff was still permitted to offer takeout and delivery services, the court found that the civil authority coverage was not triggered. Id. at 10. Governor Ron DeSantis’s orders “merely” restricted access to the properties rather than prohibiting full access to them. Id. Finally, First Watch did not allege the coronavirus was present on its property, so it did not trigger the “time element” provision of the policy. Id. at 7, 9.

On February 3, 2021, the federal district court for the Southern District of California granted The Hanover American Insurance Company’s motion for judgment on the pleadings of a café’s lawsuit seeking coverage for business interruption claims. Finding government-ordered temporary closures of on-site dining do not constitute direct physical loss, the court held the restaurant did not experience a direct physical loss. Order at 9. Although the plaintiff alleged that COVID-19 particles were on surfaces in its property, the court found that the café failed to plausibly allege its losses stemmed from COVID-19 rather than the closure orders. Id. at 11. The court reasoned that the closure orders “make no mention of COVID-19 presence at Parakeet Café,” and so the notion that COVID-19 on the café property was what prompted the closure orders “amount to nothing more than ‘bare assertions’ and ‘mere conclusory statements,’ which are not entitled to the presumption of truth.” Id. at 12.

On February 1, 2021, the Court of Common Pleas of Franklin County, Ohio granted Harleysville Worchester Insurance Company’s motion to dismiss an ophthalmologic surgery practice’s COVID-19 business interruption claim. The court found that the policy’s virus exclusion was unambiguous and clearly excluded coverage for the plaintiff’s claimed losses. Order at 8-10. The court also declined to consider 200-pages of evidentiary materials the plaintiff attached to its motion, including subpoenas and discovery requests from other cases and other courts’ orders denying insurers’ motions to dismiss. Id. at 4-5.

On February 1, 2021, the federal district court for the Central District of California granted Nationwide General Insurance Company’s and AMCO Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the owner of a nail salon. The court concluded that coverage was barred by the policy’s “clear and unequivocal” virus exclusion because the plaintiff’s alleged loss “arises from the coronavirus pandemic and resulting Public Orders.” Order at 4-6.

New Business Interruption Suits Against Insurers:

The owners of hotels and their management company sued Hartford Fire Insurance Company in Alabama state court (Birmingham Division) for declaratory relief, breach of contract, and bad faith. The “all risk” policy allegedly provides business income, extra expense, civil authority, ingress and egress, extended income and future earnings, and fungus, wet rot, dry rot, bacteria and virus coverage. Complaint at ¶¶ 9-14. The Complaint alleges that the “presence of coronavirus damaged the Scheduled Premises and rendered them, and the area and property around and contiguous to them unsafe.” Id. at ¶ 22. The Complaint further alleges that the policy’s virus exclusion does not apply “because the loss or damage falls outside the scope of the exclusion and/or within the scope of the Virus Coverage,” as the virus exclusion does not “specifically preclude[] coverage for the coronavirus, COVID-19, communicable diseases, a pandemic, governmental orders, or fear of a pandemic.” Id. at ¶ 32. 

The owner of a hotel sued Tower Hill Prime Insurance Company in Florida state court (Broward County) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, extended business income, and civil authority coverage. Complaint at ¶¶ 15, 16, 22, 24. The Complaint alleges that the plaintiff “suffered a direct physical loss of or damage to property due to the suspension of its operations from the global COVID-19 pandemic and the civil authorities’ measures to reduce the number of COVID-19 cases that develop in the population.” Id. at ¶ 25.

A manufacturer of vapor management systems, fuel delivery systems, and thermal management systems sued Factory Mutual Insurance Company in federal court (S.D. Ind.) for declaratory relief. The “all risk” policy allegedly provides supply chain time element, contingent time element, and civil authority coverage. Complaint at ¶ 62. The Complaint alleges that the “known presence or statistically-certain presence of SARS-CoV-2 virions in or about insured ‘contingent time element locations,’ or the ubiquitous and inevitable presence of SARS-CoV-2 virions throughout the locales, states, and countries where ‘contingent time element locations’ are situated, constitutes ‘physical loss or damage’ insured under the All Risk Policy.” Id. at ¶ 76.

An eye surgery center sued Transportation Insurance Company in New Mexico state court (Bernalillo County) for breach of contract, breach of duty of good faith and fair dealing, violations of New Mexico’s Insurance Practices Act and Unfair Practices Act, and declaratory relief. The “all risk” policy allegedly provides business income loss, extra expense, and civil authority coverage. Complaint ¶¶ 20, 28. The plaintiff contends the government orders caused it to lose physical use and access to its property. Id. ¶ 75. It also alleges employees and patients tested positive for COVID-19, leading it to spend $50,000 on extra expenses. Id. ¶¶ 79, 81. Thus, it alleges the coronavirus has continued to harm it, causing physical loss and damage to its property, and causing neighboring businesses to close or restrict access. Id. ¶¶ 83–84. After submitting its claim, the defendant denied the plaintiff’s claim for coverage. Id. ¶ 95.

Valley Forge Files Declaratory Action

Valley Forge Insurance Company sued an optical and eye care services provider in federal court (D. Ariz.) for declaratory relief. The policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 33-36. The Complaint alleges that any alleged limitation on the operation of the insured’s business was not caused by physical loss or damage, id. at ¶ 39, and that coverage is barred by the policy’s Fungi, Wet Rot, Dry Rot and Microbes exclusion because coronavirus is a “microbe that undeniably causes both infection and disease.” Id. at ¶ 44.

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
Rachel A. Jankowski
Associate – Washington, D.C.
Phone: +1 202.624.2647
Rachael Padgett
Associate – Washington, D.C.
Phone: +1 202.688.3441
Adam J. Singer
Associate – Washington, D.C.
Phone: +1 202.688.3508