Insurers’ COVID-19 Notepad: What You Need to Know Now, Week of July 27, 2021

Courts Dismiss COVID-19 Business Interruption Claims

On July 19, 2021, the district court for the Eastern District of Pennsylvania granted Employers Mutual Casualty Company’s motion to dismiss a car dealership’s COVID-19 business interruption complaint. The court held that the policy excluded viruses and bacteria, and there is no “legitimate dispute” that the coronavirus is a virus. Order at 6. The dealer alleged that its “reasonable expectation” should prevail, but the court held that the plaintiff’s beliefs could not overrule the policy language and noted that the reasonable expectations doctrine “is only applied in very limited circumstances to protect non-commercial insureds from policy terms not readily apparent and from insurer deception.” Id. at 8. The court noted Pennsylvania courts have not applied the reasonable expectations doctrine when the insured purchased its business insurance through a broker and thus would not do so here. Id.

On July 19, 2021, the district court for the District of New Jersey civiersey granted Twin City Fire Insurance Company’s motion for judgment on the pleadings of an ice cream shop’s putative class action for COVID-19 business interruption losses. Finding the virus exclusion applied to any pandemic-related losses, the court held that the plaintiff alleged no covered losses. Order at 12. The court refused to consider the parties’ reasonable expectations, relying on “the plain, unambiguous language of the Virus Exclusion” instead. Id. at 17–18.

On July 15, 2021, the superior court for the County of Los Angeles granted Vigilant Insurance Company and Federal Insurance Company’s motion for a demurrer and dismissed a talent agency’s COVID-19 related business interruption and bad faith claims. The court found the complaint’s allegations of temporary loss of use, “which claim no loss requiring repair, rebuilding, or replacement, are plainly insufficient” to adequately allege a covered physical loss. Order 31-32. Due to the plaintiff’s failure to allege a covered loss, the court also dismissed the plaintiff’s bad faith claims.

On July 14, 2021, the district court for the District of New Jersey granted the Hanover Insurance Group and Citizens Insurance Company of America’s motion for judgment on the pleadings and dismissed a catering company’s putative COVID-19 related class action. The court found the policy’s virus exclusion, which excluded losses “caused by or resulting from any virus,” barred coverage for the plaintiff’s claim. Order at 13.

On July 7, 2021, the district court for the Southern District of New York granted Lexington Insurance Company’s and Interstate Fire & Casualty Company’s motion to dismiss New York’s largest health care provider’s coronavirus-related business interruption complaint.

On July 16, 2021, the Circuit Court of Cook County, Illinois granted Pekin Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the operator of a carpet cleaning business. The court concluded that the insured failed to allege a direct physical loss to property because it did not allege that its property was in any way “altered in appearance, shape, color or in other material dimension,” but, rather, solely alleged loss of use of its premises due to COVID-19 closure orders. Order at 3.

On July 19, 2021, the district court for the Northern District of Illinois granted Mt. Hawley Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the operators of fitness center franchises. The court found that the insureds failed to state a claim for loss of income resulting from COVID-19 closure orders, as “permitting recovery based on the states’ shutdown orders would effectively eliminate the word ‘physical’ from the contract.” Order at 8. The court also found the insureds’ allegations of contamination with COVID-19 insufficient to state a claim, due to their failure to adequately plead its presence on their property, while noting that it was unclear whether the presence of COVID-19 “would even constitute contamination under Minnesota law” if it had been adequately pled. Id. at 9-10.

On July 19, 2021, the district court for the District of Connecticut granted Cincinnati Insurance Company’s motion to dismiss a dentistry’s COVID-19 business interruption claim. The court concluded that, under Connecticut law, “losses due to a property’s inoperability without any physical loss or damage to the property itself are not recoverable with this type of property insurance coverage.” Order at 16. The court granted the insured leave to amend to allow the insured to replead to the extent that “something more than the presence of COVID-19 alone can be alleged as a loss and a basis for insurance coverage.” Id. at 25.

New Business Interruption Class Actions:

The owner and operator of a South Carolina hair salon franchise filed a class action against Hartford Fire Insurance Company and The Hartford Financial Services Group for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgment. The plaintiff’s policy allegedly provides specialty property, extra expense, and extended business income coverage. Complaint at ¶¶ 56-67. The complaint alleges the plaintiff suffered covered physical losses because the COVID-19 pandemic caused the plaintiff to lose “access to [its] property to conduct its normal business.” Id. at ¶ 72. The complaint also alleges the policy’s virus exclusion does not apply because the losses “were caused by the worldwide pandemic” and related civil authority orders, not the presence of COVID-19 on the plaintiff’s properties.  The plaintiff seeks certification of two South Carolina statewide classes: one consisting of owners of non-essential businesses with business income coverage, and another consisting of owners of non-essential businesses with extra expense coverage. Id. at ¶ 95.

New Business Interruption Suits Against Insurers:

The operators of spas sued Nationwide Mutual Insurance Company and Nationwide Insurance Company in California state court (Orange County) for breach of contract and breach of the covenant of good faith and fair dealing. The “all risk” policies allegedly provide business income, dependent property, civil authority, and ingress or egress coverage. Complaint at ¶¶ 26-31. The Complaint alleges that the plaintiffs are entitled to business income coverage, as they were “unable to use the property and therefore lost income as the result of their inability to use the property” due to COVID-19 and associated closure orders. Id. at ¶ 19. The Complaint further alleges that the policies’ virus exclusion does not apply because the “true cause of plaintiffs’ losses are the pandemic and associated fear,” which “are not viruses.” Id. at ¶ 41.