Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of May 9, 2022

On May 5, 2022, the Eleventh Circuit affirmed the dismissal of four COVID-19 complaints brought for business interruption losses. The court predicted Florida law would conform to the rule that there is no physical loss or damage because COVID-19 did not cause any tangible alteration of the insured premises. Order at 5. According to the court, the majority view is that a phrase like “physical loss of or damage to” requires a tangible alteration to the covered property. Id. at 23. It also said that “[a]s far as we can tell, every federal and state appellate court that has decided the meaning of ‘physical loss of or damage to’ property (or similar language) in the context of the COVID-19 pandemic has come to the same conclusion and held that some tangible alteration of the property is required.” Id. at 24. It therefore found no coverage for loss of use or the inability to use the property for its intended purpose. Id. The court found that allegations of the coronavirus on the premises could not create coverage. Id. at 33. The cases are SA Palm Beach, LLC v. Certain Underwriters at Lloyd’s London; Emerald Coast Restaurants, Inc. v. Aspen Specialty Insurance Co.; R.T.G. Furniture Corp. v. Aspen Specialty Insurance Co.; and Rococo Steak, LLC v. Aspen Specialty Insurance Co.

On May 3, 2022, Seventh Circuit affirmed the dismissal of three childcare centers’ COVID-19 business interruption claims.  The court held the plaintiffs failed to state a claim for a covered physical loss under their policies’ business income, extra expense, and civil authority provisions because they did not, and could not, allege their property was physically altered by COVID-19. Order at 8. The court also affirmed the dismissal of the plaintiffs’ claims under their policies’ communicable disease provisions, which provided coverage “if a government entity shuts down business operations ‘due to an outbreak’ of a communicable disease ‘at the insured premises,’” because “in no sense were the executive orders at issue here caused by a COVID-19 outbreak at [plaintiffs’] Centers (or, for that matter, at any other specific location).” Id. at 9-10. Finally, the court affirmed the dismissal of plaintiffs’ claims under their policies’ sue and labor provisions because those provisions were dependent “on an insured seeking coverage that is outlined elsewhere in the policy,” and no such coverage was available here. Id. at 11. The case is Paradigm Care & Enrichment Ctr. v. W. Bend Mut. Ins. Co.

On May 2, 2022, the Ninth Circuit unanimously affirmed the dismissal of an event manager’s COVID-19 business interruption complaint under the policy’s virus exclusion. It expressly rejected the policyholder’s arguments that the exclusion was inapplicable, where the policyholder contended the virus was not the efficient proximate cause of its loss. Order at 5. It noted that the plaintiffs in two earlier Ninth Circuit cases, Mudpie, Inc. v. Travelers Casualty Insurance Co. of America, 15 F.4th 885 (9th Cir. 2021) and Chattanooga Professional Baseball LLC v. National Casualty Co., No. 20-17422, 2022 WL 171936 (9th Cir. Jan. 19, 2022) also argued that the government shutdown orders caused the loss, rather than the virus, but the court said that the plaintiff here could not show that the governmental response “was the product of anything other than the virus,” and so coverage was precluded. Id. at 3–5. The case is Palmdale Estates, Inc. v. Blackboard Insurance Co.

On May 3, 2022, the district court for the Central District of California granted AmGuard Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by several Los Angeles businesses. The court concluded that the policies’ virus exclusions barred coverage, finding the plaintiffs’ contention that the COVID-19 virus caused “real physical loss of or damage to Plaintiffs’ Properties” to be a clear admission that their losses “fit squarely within the plain language of the Virus Exclusion.” Order at 4. The case is Goergio Cosani Menswear Inc., et al. v. AmGuard Ins. Co., et al.

On April 27, 2022, a magistrate judge for the district court for the Middle District of Pennsylvania recommended that Nationwide Mutual Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the owner and operator of a restaurant be granted. The magistrate “join[ed] the rising tide of caselaw which has found that these losses [from COVID mandated closings and restrictions] are not encompassed by the terms of most commercial insurance policies,” Order at 1, and found that coverage was not triggered because “physical damage or loss to the covered property stands as a firm prerequisite for direct loss coverage” and the plaintiff asserted only “losses of business, not property.” Id. at 13. The magistrate further concluded that the policy’s virus exclusion “bars coverage of a claim for losses based on Covid-19.” Id. at 14. The case is Roberto & Cesare Picone v. Nationwide Mut. Ins. Co.

New Business Interruption Suits Against Insurers:

An indoor playground business sued Northfield Insurance Company in federal court (C.D. Cal.) for declaratory relief, breach of contract, breach of the covenant of good faith and fair dealing, unfair business practices under Cal. Bus. & Prof. Code § 17200 et seq., unjust enrichment, and negligent misrepresentation. The policy allegedly provides business income, extended business income from dependent properties, and civil authority coverage. Complaint at ¶ 48. The Complaint alleges that the “presence of COVID-19 on property, including Plaintiff’s property, causes a distinct, demonstrable, physical change and/or tangible alteration which results in continuous physical loss and/or damage to the property and is hazardous to human health.” Id. at ¶ 33. The case is Kids Indoor Playground, Inc. v. Northfield Ins. Co., et al.