Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of (March 28, 2022)

Courts Dismiss COVID-19 Business Interruption Claims

On March 22, 2022, the Fifth Circuit affirmed the grant of Twin City Fire Insurance Company’s motion for judgment on the pleadings in a men’s clothing store’s COVID-19 business interruption claim. The court concluded that “the Louisiana Supreme Court would interpret ‘direct physical loss of or damage to property’ to cover only tangible alterations of, injuries to, and deprivations of property.” Opinion at 7. Accordingly, the court found that, under Louisiana law, “losses caused by civil authority orders closing nonessential businesses in response to the COVID-19 pandemic do not fall within the meaning of ‘direct physical loss of or damage to property.’” Id. at 15. Thus, coverage was unavailable because the store “only alleged a loss of business income due to its compliance with the civil authority orders” and its property “has been unchanged by the orders or the close of its stores.” Id. at 10. The case is Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co.

On March 21, 2022, the Illinois Court of Appeals affirmed the decision of the trial court, dismissing a restaurant’s COVID-19-related business interruption class action complaint. On “direct physical loss,” the court agreed with the decision in Sandy Point Dental P.C. v. Cincinnati Insurance Co. and held that “direct physical loss” requires a physical alteration to the property, which is the “plain, ordinary, and popular meaning given to that phrase by the average, ordinary, normal, reasonable person.” Order at 6, 8. As for the virus exclusion, under its “plain and ordinary language,” the claims were excluded. Id. at 9. The case is Jaewook Lee v. State Farm Fire and Casualty Co.

On March 21, 2022, the district court for the Southern District of California granted Nationwide Mutual Insurance Company’s motion to dismiss two restaurants’ COVID-19 business interruption claim. The court concluded that the plaintiffs’ alleged losses due to closure orders and COVID-19’s presence on neighboring properties were each “caused by or resulting from” COVID-19 and, therefore, the policy’s virus exclusion “takes Plaintiffs’ alleged losses outside the Policy, so Nationwide didn’t breach the Policy by declining to cover them.” Order at 4. The case is Mille Fleurs, et al. v. Nationwide Mut. Ins. Co., et al.

On March 23, 2022, the district court for the Western District of Louisiana granted Phoenix Insurance Company’s motion to dismiss a professional medical corporation’s COVID-19 business interruption claim. The court concluded that the plaintiff failed to plead a viable claim for coverage, as the Fifth Circuit’s jurisprudence supported the “position that ‘physical loss of or damage’ to property typically requires demonstrable, physical alteration of the property” and “[m]ore importantly, courts have consistently—and uniformly—held that losses incurred because of COVID-19 mandates are purely economic in nature.” Order at 5-6 (emphasis in original). The court further held that the policy’s virus exclusion barred coverage, as “the Complaint alleges loss or damage ‘resulting from’ an excluded risk, specifically a ‘virus that induces or is capable of inducing physical distress, illness or disease.’” Id. at 9. The case is Patrick A. Juneau III MD APMC v. Travelers Prop. Cas. Ins. Co.

On March 23, 2022, the district court for the Southern District of New York granted Federal Insurance Company’s motion to dismiss a Broadwayproduction company’s COVID-19-related business interruption claims. The court held that remediation efforts like installing plexiglass and sanitizer stations are not meant to “replace or repair damage to property[;] they are there to protect humans.” Order at 21. Additionally, government shutdown orders that do not prohibit access do not trigger coverage under the policy’s civil authority provision. Id. at 23. The case is John Gore Organization, Inc. v. Federal Insurance Co.

On March 23, 2022, the district court for the Eastern District of Louisiana granted Zurich American Insurance Company and XL Insurance America, Inc.’s motion to dismiss a health system’s COVID-19-related claims. The court held the plaintiff failed to state a claim for a covered physical loss “because, as held by the Fifth Circuit, ‘physical loss of property is not synonymous with the loss of use of property for its intended purposes.’” Order at 19-20.  The court also rejected the plaintiff’s argument for coverage under its interruption for communicable disease extension because the civil authority orders alleged to have triggered coverage did not prohibit access to the plaintiff’s facilities, and the plaintiff “at all times remained able to perform emergency medical services[] and elective procedures which could not safely be postponed.” Id. at 27-28. Finally, the court dismissed the plaintiff’s bad faith claim due to the failure of its underlying breach of contract claim. Id. at 31-32. The case is St. Tammany Parish Hosp. Serv. Dist. No. 2 v. Zurich Am. Ins. Co.

On March 23, 2022, the district court for the Central District of California entered judgment on In-N-Out Burgers’ COVID-19 business interruption claim. The court reaffirmed its earlier dismissal of In-N-Out Burgers’ claim and awarded costs to defendant Zurich American Insurance Company. Order at 1. The case is In-N-Out Burgers v. Zurich Am. Ins. Co.

Federal Court Denies Motion to Remand

On March 24, 2022, the district court for the Eastern District of Pennsylvania denied the Philadelphia Eagles American football team’s motion to remand its COVID-19-related declaratory judgment action against Factory Mutual Insurance Company to state court. The court held that “the present case does not raise any novel or unsettled issues of state law that would establish a public interest in remanding the action to state court.” Order at 9. The case is Phila. Eagles Ltd. P’ship v. Factory Mut. Ins. Co.

New Business Interruption Suits Against Insurers:

A dental support organization sued Aspen American Insurance Company in Connecticut state court (District of Hartford) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income and civil authority coverage. Complaint at ¶¶ 20, 22. The Complaint alleges that the “physical presence of the virus at, in, on, and around Plaintiff’s properties, as well as the closures and capacity restrictions themselves constitute and caused direct physical partial or total loss of or damage to Plaintiff’s properties under the Policy.” Id. at ¶ 41. The case is Element Dental Partners Holdco, LLC v. Aspen Am. Ins. Co.

The owner and operator of retail stores sued Hartford Fire Insurance Company in Connecticut state court (District of Hartford) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business income, extra expense, civil authority, and dependent properties coverage. Complaint at ¶¶ 149, 157, 158. The Complaint alleges that “COVID-19 and SARS-CoV-2 cause direct physical loss of or damage to property (or both) by, among other things, destroying, distorting, attaching to, and physically altering property, including its surfaces, and by rendering property unusable, uninhabitable, unfit for intended functions, dangerous, and unsafe.” Id. at ¶ 53. The case is Windsor Fashions Holdings, LLC v. Hartford Fire Ins. Co.

A restaurant sued Lexington Insurance Company in Massachusetts state court (Suffolk County) for declaratory relief, breach of contract, and breach of the duty of good faith and fair dealing. The “all risk” policy allegedly provides coverage for business interruption losses, losses caused by government orders, and extra expense. Complaint, ¶ 12. According to the plaintiff, it had a “reasonable expectation” coverage applied for business interruption caused by “unforeseen and fortuitous events.” Id. ¶ 13. The case is Corton, LLC v. Lexington Insurance Co.

Several New York restaurants sued Admiral Indemnity Company in New Jersey state court (Bergen County) for declaratory relief, breach of contract, and the breach of the duty of good faith and fair dealing. The “all risk” policy allegedly provides coverage for business interruption, losses caused by government orders, decontamination costs, extra expense, and communicable disease. Complaint, ¶ 12. According to the plaintiff, it had a “reasonable expectation” coverage applied for business interruption caused by “unforeseen and fortuitous events.” Id. ¶ 13. The case is Le Bernardin, Inc. v. Admiral Indemnity Co.

Panda Express sued Lexington Insurance Company, AIG Specialty Insurance Company, Westport Insurance Corporation, Everest Indemnity Insurance Company, Axis Surplus Insurance Company, Evanston Insurance Company, Maxum Indemnity Company, and Hallmark Specialty Insurance Company for breach of contract and declaratory relief in Nevada state court (Clark County). The “all risk” insurance policies allegedly contained coverage for business interruption, communicable disease, extra expense, interruption by civil or military authority, contingent time element, extended period of indemnity, ingress and egress, ordinary payroll, professional fees, limit pollution coverage, leasehold interest, and spoilage. Complaint, ¶ 124. The plaintiffs claim the insurers “uniformly” denied coverage without investigating. Id. ¶ 154. The case is Panda Restaurant Group v. Lexington Insurance Co.

Several property investors sued Affiliated FM Insurance Company for declaratory judgment and breach of contract in New York state court (New York County). The “all risks” policy allegedly provides coverage for business interruption, losses caused by civil authority orders, and communicable disease. Complaint, ¶¶ 19, 25. According to the plaintiffs, the presence of the virus caused alterations, and thus physical loss and physical damage, to their property. Id. ¶ 52. The case is Millennium Partners Management, Inc. v. Affiliated FM Insurance Co.

A dental practice sued Erie Insurance Company in Pennsylvania state court (Montgomery County) for declaratory judgment and compensatory relief. Plaintiff’s policy allegedly provides business income, extra expense, and civil authority coverage. Complaint ¶ 30. The complaint alleges the plaintiff suffered a covered physical loss because the “COVID-19 pandemic” and related state civil authority orders caused “a loss of use of [plaintiff’s] premises.” Id. ¶ 23. The case is Advanced Dental Esthetics v. Erie Ins. Co.

A hospitality business sued Fireman’s Fund Insurance Company in Pennsylvania state court (Philadelphia County) for breach of contract, breach of the duty of good faith and fair dealing, and statutory bad faith. Plaintiff’s policy allegedly provides business income, extra expense, building and personal property, civil authority, and communicable disease coverage. Complaint at ¶¶ 5-8. The complaint alleges plaintiff suffered a covered loss due to the presence of COVID-19 on its covered property, and because civil authority orders caused plaintiff’s business operations to cease. Id. at ¶¶ 25, 36.  The complaint also alleges Fireman’s Fund acted in bad faith by denying claims that plaintiff “reasonably expected” to be covered. Id. at ¶ 28. The case is Brandywine Valley Premier Hosp. Grp. v. Fireman’s Fund Ins. Co.

A denim manufacturer, its founder, and an apparel retailer sued Affiliated FM Insurance Company in Rhode Island state court (Providence/Bristol County) for declaratory judgment and breach of contract. The plaintiffs’ “all risk” policy allegedly provides business interruption, extra expense, civil authority, supply chain, logistics extra cost, attraction property, protection and preservation of property, decontamination cost, and communicable disease coverage. Complaint ¶¶ 134-61. The complaint alleges the plaintiffs suffered covered physical losses because individuals visiting the retailer plaintiff’s premises “breath[ed] SARS-CoV-2 and COVID-19 into the air” and “touched countless surfaces in [the plaintiff’s] insured premises” and because state civil authority orders limited access to the retailer plaintiff’s stores.  Id. at ¶ 101, 141. The case is Koos Mfg., Inc. v. Affiliated FM Ins. Co.

A bar owner and operator sued certain underwriters at Lloyd’s London for breach of contract. Plaintiff’s policy allegedly provides building and personal property, business income, and extra expense coverage. Complaint at ¶ 15. The complaint alleges the plaintiff suffered a covered loss because, due to local civil authority orders, “Plaintiff was unable to operate and earn revenue sufficient to pay its monthly lease obligations which resulted in Plaintiff suffering a physical loss of its covered property to its landlord.” Id. at ¶ 18. The case is Spider House LLC v. Certain Underwriters at Lloyd’s, London.