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

Courts Dismiss COVID-19 Business Interruption Claims

On November 30, 2021, the U.S. Court of Appeals for the Sixth Circuit affirmed the Northern District of Ohio’s decision to dismiss a bridal shop’s COVID-19 business interruption claim. Relying on its previous decision in Santo’s Italian Café LLC v. Acuity Insurance Co., the court held that loss of use does not constitute physical loss or damage under the policy. Order at 3. The plaintiff retained possession of its property and could use it. Id. Simply because the company could not “use the property in the same way as it did before the pandemic . . . does not satisfy the policy’s language.” Id. As for the allegations involving the presence of the virus, the court found the plaintiff did “little more than repeat the language of the policy.” Id. at 4. Bare allegations of damage, and a “preventative” suspension of operations do “not materially add anything to the ‘use’ theory” or “put the insurance company on notice of a distinct theory of coverage by explaining how the virus physically altered property.” Id. at 4–5. The case is Bridal Expressions LLC v. Owners Insurance Co.

On December 2, 2021, the Court of Appeals of Ohio, Eighth Appellate District, affirmed the grant of Hiscox Insurance Company’s motion for judgment on the pleadings in a COVID-19 business interruption claim filed by a nail salon. The court concluded that the trial court “correctly ruled that the virus exclusion in [the insured’s] Policy is ‘clear and unambiguous’[.]” Opinion at 11. The court further held that the insured “did not have a valid claim for coverage because it could not prove ‘direct physical loss of or damage to Covered Property’ required for ‘Business Income or Extra Expense’ coverage under the policy.” Id. The case is The Nail Nook, Inc. v. Hiscox Ins. Co., Inc., et al.

On November 18, 2021, the district court for the Eastern District of Louisiana granted Starr Surplus Lines Insurance Company’s motion to dismiss several car dealerships’ COVID-19 business interruption claim. The court found the plaintiffs’ allegations insufficient to satisfy the policy’s “direct physical loss or damage” requirement, as “Fifth Circuit precedent is clear that tangible damages are necessary to satisfy the ‘physical loss or damage’ language of a policy, even when a policy provides coverage in cases of physical loss or damage.” Order at 16 (emphasis in original). The court further found that the policy’s “Contamination Clause unambiguously excludes coverage for losses resulting from COVID-19.” Id. at 22. The case is Ford of Slidell, LLC, et al. v. Starr Surplus Lines Ins. Co.

On November 19, 2021, the district court for the Middle District of North Carolina granted a motion to dismiss filed by the Hanover Insurance Group and the Hanover American Insurance Company against a clothing store who filed a COVID-19 business interruption related complaint. The district court agreed with the magistrate judge’s report and recommendation that a virus exclusion in the policy barred any recovery for coronavirus-related losses and dismissed the complaint with prejudice. Order at 1–2. The case is Julie’s, Inc. v. Hanover Insurance Group.

Insurer Files Declaratory Action:

Atlantic Specialty Insurance Company sued motion picture and video production companies in federal court (S.D. Ga.) for declaratory relief in connection with their claim for coverage for production interruption losses arising from the interruption in the production of “Florida Girls Season Two” due to the outbreak of COVID-19. The motion picture/television producers portfolio policy allegedly provides extra expense due to the interruption, postponement or cancellation of an insured production, imminent peril, ingress and egress, and civil authority coverage. Complaint at ¶¶ 4-7. The Complaint alleges that the insureds have not cooperated in the insurer’s investigation or provided supporting documentation to support their claim for coverage. Id. at ¶¶ 75-79. The insurer seeks a declaration that its obligations under the policy have been excused by the insureds’ failure to comply with their duties and conditions precedent in the policy. Id. at ¶ 98. The case is Atlantic Specialty Ins. Co. v. FLG Productions, LLC, et al.