Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of 09.27.2021

Courts Dismiss COVID-19 Business Interruption Claims

On September 17, 2021, the district court for the District of New Jersey granted Zurich American Insurance Company’s motion for judgment on the pleadings in an apparel retailer’s COVID-19 business interruption claim. The court concluded that “neither COVID-19 nor the Virus can form the basis of a claim for physical loss or damage under the Policy,” Order at 11, and the plaintiff’s claim falls outside the scope of coverage because its alleged losses “are not causally connected to the physical condition of its stores.” Id. at 9. The case is The Children’s Place, Inc. v. Zurich Am. Ins. Co.

On September 20, 2021, the district court for the District of New Jersey granted The Charter Oak Fire Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the owner and operator of an optometry business. The court concluded that the policy’s unambiguous virus exclusion bars coverage. The court rejected the plaintiffs’ contention that the exclusion did not apply because COVID-19 closure orders, rather than COVID-19 itself, were the efficient proximate cause of its losses, as “COVID-19 and the Executive Orders issued to prevent its spread should not be seen as two separate, independent events contributing to a loss but rather as inextricably intertwined such that the latter were entirely dependent and preconditioned on the existence of the former.” Order at 11-12. The case is J.G. Optical, Inc. v. The Travelers Companies, Inc., et al.

On September 21, 2021, the district court for the District of New Jersey granted Sentinel Insurance Company’s motion for judgment on the pleadings in a dental practice’s COVID-19 business interruption claim. The court concluded the plaintiff’s claim was barred by the policy’s virus exclusion and rejected the plaintiff’s argument that its reasonable expectations should be considered, because there was no genuine ambiguity in the policy language. Order at 14-16. The case is ABC Children’s Dentistry, LLC v. The Hartford Insurance Co. d/b/a The Sentinel Ins. Co., Ltd.

On September 21, 2021, the district court for the Eastern District of Louisiana granted State Farm Fire and Casualty Company’s motion to dismiss a restaurant’s COVID-19 business interruption claim. The court concluded that the plaintiff failed to demonstrate the “direct physical loss” required to trigger coverage under the policy, as it did not allege “any physical loss that manifested as a demonstrable physical alteration of the premises.” Order at 15-16. The case is Muriel’s New Orleans, LLC v. State Farm Fire & Cas. Co.

On September 22, 2021, the district court for the District of New Jersey granted Charter Oak Fire Insurance Company’s and Traveler’s Indemnity Company’s motion to dismiss a COVID-19 business interruption claim filed by commercial and residential steel manufacturers and distributors. The court rejected the plaintiffs’ contention that the policy’s virus exclusion was inapplicable because the basis for its claim “lies in Governor Murphy’s Executive Order rather than in the virus itself,” Order at 4, and found that the virus exclusion “unambiguously bars coverage for Plaintiffs’ claims.” Id. at 6. The case is OEG Building Materials, Inc., et al. v. Charter Oak Fire Ins. Co., et al.

On September 22, 2021, the district court for the Eastern District of Pennsylvania granted Cincinnati Insurance Company’s motion to dismiss a brewery and restaurant’s COVID-19 business interruption claim. The court concluded that the complaint failed to identify “any demonstrable, physical damage to property,” as it alleged that the property “closed in response to the mandated shutdown” without any facts “to demonstrate this happened because of direct physical loss or damage to any property.” Order at 6. The case is Round Guys Brewing Co. v. Cincinnati Ins. Co.

On September 22, 2021, the district court for the Middle District of Tennessee granted Cincinnati Insurance Company’s motion to dismiss a restaurant operator’s COVID-19 business interruption claim. The court concluded that “[a] ‘direct physical loss to property’ does not reasonably encompass loss of access to the property or loss of functionality of the property.” Order at 9. “To the contrary, ‘direct physical’ implicates a tangible impact to the property’s structure—not necessarily in the sense that the property must become structurally unsound, but that there is some material, tangible, physical alteration to the property.” Id. The plaintiff’s allegation “that the coronavirus is or was physically present on its premises does not plausibly allege a tangible harm to the property,” as the coronavirus “does not physically harm property and can be eliminated simply by cleaning and disinfecting surfaces.” Id. at 13. The case is Southern Kitchen Nashville, LLC v. The Cincinnati Ins. Co., et al.

On September 22, 2021, the district court for the Middle District of Tennessee granted Cincinnati Insurance Company’s motion to dismiss a restaurant operator’s COVID-19 business interruption claim. The court “agree[d] with the majority of federal courts to have construed identical or similar policy language that ‘direct physical loss or damage’ requires tangible, material, physical alteration to property.” Order at 12. The plaintiff’s claim therefore failed because its “allegation that the coronavirus is or was physically present on its premises does not plausibly allege a tangible harm to the property.” Id. at 13. The court also rejected the plaintiff’s claim under its policy’s civil authority provisions because COVID-19 does not cause property damage and the civil authority orders at issue did not prohibit access to the plaintiff’s property. Id. at 15. The case is Acme Nashville LLC, d/b/a Acme Feed & Seed v. The Cincinnati Ins. Co.

On September 22, 2021, the district court for the Middle District of Tennessee granted Cincinnati Insurance Company’s motion to dismiss a restaurant operator’s COVID-19 business interruption claim. The court held that the plaintiff failed to state a claim for coverage because the presence of COVID-19 on the restaurant’s premises did not amount to tangible physical loss or damage. Id. at 12-13. The court also rejected the plaintiff’s claim for civil authority coverage because the civil authority orders at issue did not prohibit access to the plaintiff’s property. Id. at 15. The case is LGW, LLC v. The Cincinnati Ins. Co., et al.

On September 22, 2021, the district court for the Middle District of Tennessee granted Cincinnati Insurance Company’s motion to dismiss a restaurant operator’s COVID-19 business interruption claim. The court held the plaintiff failed to state a claim for coverage because the presence of COVID-19 on the plaintiff’s premises did not amount to tangible physical loss or damage. Order at 12-14. The court also rejected the plaintiff’s claim for civil authority coverage because the civil authority orders at issue did not prohibit access to the plaintiff’s property. Id. at 15. The case is Woolworths Nashville, LLC, d/b/a Woolworth on 5th v. The Cincinnati Ins. Co., et al.

On September 22, 2021, the district court for the Western District of Washington granted Philadelphia Indemnity Insurance Company’s motion to dismiss a yoga studio owner and operator’s COVID-19 business interruption claim. Because “all of Plaintiff’s theories of liability depend on there having been direct physical loss or damage to its properties, and the Court having [already] found that closure due to COVID-19 does not constitute physical loss or damage,” the court held that “all of Plaintiff’s claims must be dismissed.” Order at 5. The case is Hot Yoga, Inc. v. Philadelphia Indemnity Ins. Co.

On September 22, 2021, the district court for the Western District of Washington granted Allied World Surplus Lines Insurance Company’s motion to dismiss a gym owner and operator’s COVID-19 business interruption claim. Noting that it had “already decided numerous cases involving identical policy language,” the court followed its prior decisions in holding that the plaintiffs could not state a claim because COVID-19 does not constitute physical loss or damage. Order at 3-5. The case is Wellington Athletic Club, LLC v. Allied World Surplus Lines Ins. Co.

On September 22, 2021, the district court for the Middle District of Tennessee granted Cincinnati Insurance Company’s motion to dismiss a restaurant operator’s COVID-19 business interruption complaint. The court held the presence of the coronavirus did not cause physical loss or damage. Order at 14. In coming to its decision, the court joined “the majority of federal courts” to interpret same or similar “direct physical loss or damage” policy language and found that it “requires tangible, material, physical alteration to property.” Id. at 12. The court found the restaurants were not completely uninhabitable because they could still do takeout services and patrons could still enter the buildings, even if only for limited services. Id. at 13. Because the virus could be removed from surfaces through cleaning and disinfectant, the coronavirus did not physically harm property. Id. at 14. The case is Pizza Loves Emily Holdings, LLC v. Cincinnati Insurance Co.

On September 22, 2021, the district court for the Middle District of Tennessee granted Cincinnati Insurance Company’s motion to dismiss a Nashville dental practice’s COVID-19-related business loss claims. The court held the presence of the coronavirus did not cause physical loss or damage. Order at 14. Even though its services were limited to essential procedures, the court held the dental office’s property was not completely uninhabitable. Id. at 13. While there were restrictions on performing nonemergency procedures, they were not barred because of the presence of the virus at the office. Id. The case is Gaston & Murrell Family Dentistry, PLLC v. Cincinnati Insurance Co.

On September 22, 2021, the district court for the Middle District of Tennessee granted Cincinnati Insurance Company’s motion to dismiss a restaurant’s coronavirus-related business interruption complaint in a one-page order. Order at 1. The case is Twelve Twelve Nashville, LLC v. Cincinnati Insurance Co.

On September 23, 2021, the district court for the Northern District of Illinois granted Cincinnati Insurance Company’s motion to dismiss a group of Chicago restaurants’ coronavirus-related business income complaint. Relying on Oral Surgeons, P.C. v. Cincinnati Insurance Co. 2 F.4th 1141 (8th Cir. 2021), the court found the plaintiffs made general allegations of economic losses related to the pandemic, which are not covered under the policies. Order at 6. The complaint does not include “well-pleaded allegations of physical alteration of plaintiff’s properties.” Id. “Nor do plaintiffs plausibly allege that COVID-19-causing virus particles have physically altered their properties.” Id. The case is 3 Squares, LLC v. Cincinnati Insurance Co.

On September 23, 2021, the district court for the Northern District of Illinois granted Houston Casualty Company’s motion to dismiss a COVID-19 business interruption claim filed by the owner of several movie theaters. The court concluded that the plaintiff’s allegations of economic losses resulting from COVID-19 closure orders failed to satisfy the policy’s direct physical loss or damage requirement, as the complaint “includes no well-pleaded allegations of physical alteration of plaintiff’s properties” and failed to “plausibly allege that COVID-19-causing particles have physically altered its properties.” Order at 7-8. The case is East Coast Entertainment of Durham, LLC v. Houston Cas. Co., et al.

New Business Interruption Suits Against Insurers:

The owner and operator of indoor skydiving facilities sued Zurich American Insurance Company in Illinois state court (Cook County) for breach of contract and violation of ILCS § 5/155. The “all risk” policy allegedly provides business interruption, civil authority, ingress/egress, extra expense, ordinance or law, goodwill and public relations, and loss of attraction coverage. Complaint at ¶ 1. The Complaint alleges that “the presence of the Coronavirus in and on property, including in indoor air, on surfaces, and on objects, causes direct physical loss of or damage to property by causing physical harm to and altering property and otherwise making it incapable of being used for its intended purpose,” id. at ¶ 25, and that respiratory particles and fomites “are physical substances that alter the physical properties of the interiors of buildings to make them unsafe, untenantable, and uninhabitable.” Id. at ¶ 28. The case is iFly Holdings, LLC v. Zurich Am. Ins. Co.

A hotel sued Princeton Excess and Surplus Lines Insurance Company and Steadfast Insurance Company in Hawaii state court (Fifth Circuit) for breach of contract and bad faith. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 17-21. The Complaint alleges that “the pandemic caused direct physical loss of or damage to Plaintiff’s operations by physically impairing, detrimentally altering, rendering them nonfunctional, and by depriving them of the ability to function and operate.” Id. at ¶ 3. The case is DCI Paradise, LLC v. The Princeton Excess & Surplus Lines Ins. Co., et al.