Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of February 21, 2022

Courts Dismiss COVID-19 Business Interruption Claims

On February 4, 2022, the district court for the Western District of Virginia granted American Guarantee & Liability Insurance Company’s motion to dismiss a health system’s COVID-19-related business interruption complaint. Noting that the Elegant Massage, LLC v. State Farm Mutual Automobile Insurance decision “stands alone,” the court found that there is no support for finding the spread of the coronavirus and associated costs constitute direct physical loss. Order at 10–12. Additionally, the court found that even if the policy did provide coverage, it also included a virus contamination exclusion that precludes coverage. Id. at 13. The case is Carilion Clinic v. American Guarantee & Liability Insurance Co.

On February 15, 2022, the district court for the District of Arizona denied a restaurant owner and operator’s motion to amend its COVID-19 business interruption complaint and ordered the case to be dismissed. The court held the plaintiff failed to state a claim for coverage because, as “[m]any courts have found,” plaintiffs failed to demonstrate how COVID-19 civil authority orders resulted in actual physical loss or damage. Order at 10-11. The court also rejected plaintiff’s attempt to rely on the reasonable expectations doctrine because “an average layperson would understand the term physical loss or damage to require actual, physical harm rather than a loss of use or access,” because plaintiff was provided with adequate notice because it received copies of its policies with “the term physical loss or damage written in plain language,” and because plaintiff failed to establish how an unidentified insurance broker was affiliated with the defendants. Id. at 7-9. The case is Team 44 Restaurants LLC v. Am. Ins. Co.

On February 14, 2022, the district court for the District of Oregon granted First Mercury Insurance Company’s motion for summary judgment in a COVID-19 business interruption claim filed by the owner and operator of two taverns and denied the tavern operator’s motion to certify questions to the Oregon Supreme Court. The court concluded that “Oregon appellate courts have offered sufficient guidance suggesting that the Oregon Supreme Court would conclude that the plain meaning of ‘direct physical loss of or damage to’ property requires dispossession or physical alteration to the property” and therefore certification to the Oregon Supreme Court was not warranted. Order at 5. Moreover, because the parties agreed that the plaintiff was not dispossessed of its property and the property suffered no physical alteration, the plaintiff had “not met its burden to show that any provision of the Policy covers [its] losses.” Id. at 11. The case is Zeco Dev. Grp., LLC v. First Mercury Ins. Co.

On February 16, 2022, the district court for the District of Oregon adopted a magistrate judge’s findings and recommendations and granted Cincinnati Insurance Company’s motion to dismiss a restaurant operator’s COVID-19 business interruption class action claim. The magistrate concluded that the plaintiff’s alleged losses “are more appropriately considered financial, and not physical in nature” and the “plain meaning of the term ‘physical loss’ does not encompass the plaintiff’s business losses in the wake of the COVID-related orders.” Findings and Recommendation at 9. The case is Papi, LLC v. The Cincinnati Ins. Co.

New Business Interruption Suits Against Insurers:

A musculoskeletal health care provider sued Factory Mutual Insurance Company in Rhode Island state court (Providence/Bristol County) for declaratory judgment, breach of contract, breach of the implied covenant of good faith and fair dealing, and common law and statutory bad faith. Plaintiff’s “all risk” policy allegedly provides gross profit, extra expense, time element, civil authority ingress/egress, and communicable disease response and interruption coverage. Complaint at ¶¶ 99-109. The complaint alleges that Factory Mutual should have covered plaintiff’s losses beyond the $1 million communicable disease policy limits because, by granting communicable disease coverage, Factory Mutual purportedly “admitted that the presence of COVID-19 at [plaintiff’s] insured locations (and other hospitals and medical providers in a five-mile radius) was the ‘basis’” of New York’s COVID-19-related civil authority orders. Id. at ¶ 137. The complaint also alleges plaintiff suffered covered physical loss because “[v]iral particles were released into the air by infected persons” at plaintiff’s covered properties and because those particles “fell onto surfaces of fixtures and other property in those buildings.” Id. at ¶ 89. Finally, the complaint alleges Factory Mutual acted in bad faith by “knowingly or recklessly fail[ing] to conduct a reasonable investigation of [plaintiff’s] claims.” Id. at ¶ 152. The case is N.Y. Soc’y for the Relief of the Ruptured & Crippled v. Factory Mut. Ins. Co.

A Native American tribe sued Affiliated FM Insurance Company in Washington state court (King County) for breach of contract, negligence, alleged Washington Consumer Protection Act violations, and declaratory relief. Plaintiff’s “all risk” policy allegedly provides, among other things, additional coverage for property damage caused by communicable disease. Complaint at ¶ 6-7. The complaint alleges the plaintiff suffered covered property damage because “[t]he communicable disease Covid 19 [sic] was physically present at Plaintiff’s insured premises.” Id. at ¶ 15. The complaint also alleges AFM was negligent and violated the Washington Consumer Protection Act because AFM allegedly failed to conduct a fair and impartial claims investigation and because AFM’s conduct in adjusting the claim “include[d] per se and/or non per se unfair and deceptive acts or practices.” Id. at ¶¶ 43, 46. The case is Muckleshoot Indian Tribe v. Affiliated FM Ins. Co.

A sports club owner and operator sued Affiliated FM Insurance Company in Washington state court (King County) for breach of contract, negligence, alleged Washington Consumer Protection Act violations, and declaratory relief. Plaintiff’s “all risk” policy allegedly provides, among other things, additional coverage for property damage caused by communicable disease. Complaint at ¶ 6-7. The complaint alleges the plaintiff suffered covered property damage “initiated by the communicable disease known as Covid 19 [sic].” Id. at ¶ 15. The complaint also alleges AFM was negligent and violated the Washington Consumer Protection Act because AFM allegedly failed to conduct a fair and impartial claims investigation and because AFM’s conduct in adjusting the claim “include[d] per se and/or non per se unfair and deceptive acts or practices.” Id. at ¶¶ 43, 46. The case is Pro. Recreation Org., Inc. v. Affiliated FM Ins. Co.

A medical office sued American Casualty Company of Reading, PA over business interruption losses related to the COVID-19 pandemic. The office alleges that the coronavirus “was actually present” at its office and constitutes physical loss or damage to its property. Complaint at 3–4. It alleges that the insurer “consciously and purposefully” decided not to include a virus exclusion. Id. at 5. Because the insurer denied its claim “without just cause”, the plaintiff asserts it breached its contract. Id. at 6. The case is Oano, LLC v. American Casualty Co. of Reading, PA.

A hospitality company sued Philadelphia Indemnity Insurance Companies for declaratory relief and breach of contract. Philadelphia allegedly issued a policy covering business income and extra expense. Complaint ¶¶ 10–11. The plaintiff was forced to suspend its business operations. Id. ¶ 18. Because the insurer denied the claim, the plaintiff alleges it breached the coverage obligations under its policy. Id. ¶ 38. The case is Armory Hospitality, LLC v. Philadelphia Indemnity Insurance Cos.

Insurer Files Declaratory Judgment Action:

Charter Oak Fire Insurance Company sued High End Hotel, LLC in federal court (E.D. Tex.) for declaratory relief. Defendant’s policy allegedly provides business income and civil authority coverage. Complaint at ¶¶ 38-42. The complaint alleges defendant did not suffer covered losses because social distancing and food service-related civil authority orders did not constitute physical loss or damage and because the losses were excluded by the policy’s virus and ordinance or law exclusions, "enforced even if the property has not been damaged. Id. at ¶¶ 44, 49-54." The case is Charter Oak Fire Ins. Co. v. High End Hotel, LLC.