Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of November 22, 2021

Courts Dismiss COVID-19 Business Interruption Claims

On November 15, 2021, the Fourth Appellate District Court of Appeal of California affirmed the trial court’s decision in favor of California Mutual Insurance Company in a key state appellate court ruling for insurers. The court held that a hotel’s business income losses due to the coronavirus pandemic were not covered under the insurance policy. The court first found that the hotel’s suspension of operations was not caused by “direct physical . . . damage to” its property. Order at 22. Rather than issuing the orders because of the virus’ presence at the hotel, the orders were issued because of the virus’ presence throughout the community. Id. at 33. The court also found civil authority coverage was precluded because the orders were not issued “due to direct physical loss of or damage to” any property. Id. at 32. The case is Inns by the Sea v. California Mutual Insurance Co.

On November 18, 2021, the Superior Court of the State of Delaware granted HDI Global Insurance Company’s motion to dismiss a water park owner and operator’s COVID-19 business interruption claim. The court held the plaintiff’s claim was barred by its policy’s pollution and contamination exclusion. Order at 14. The case is APX Operating Co., LLC v. HDI Glob. Ins. Co.

On November 12, 2021, the district court for the District of Massachusetts granted RSUI Indemnity Company’s motion to dismiss a COVID-19 business interruption claim filed by the operator of several restaurants, bars, pubs and entertainment venues. The court concluded that “physical loss” or “damage” under Massachusetts law “requires that the cause of loss or damage be a tangible alteration to the property itself.” Order at 8. Thus, the court found that the insured could not establish coverage, as it “does not allege facts showing that [the presence of COVID-19 at its locations] caused tangible damage to any of its insured properties.” Id. at 13. The court further found that the policy’s pathogen exclusion precluded coverage. Id. at 17. The case is Glynn Hospitality Group, Inc. v. RSUI Indem. Co.

On November 15, 2021, the district court for the Southern District of Iowa granted Zurich American Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the owner and operator of various entertainment businesses. The court concluded that “[u]nder a plain and ordinary meaning analysis of the phrase ‘direct physical loss of or damage to Property,’ coverage is not extended to purely economic loss caused by or resulting from COVID-related government shutdown orders.” Order at 9. The case is Great River Entertainment, LLC v. Zurich Am. Ins. Co.

On November 18, 2021, the district court for the Southern District of New York granted Sentinel Insurance Company, Ltd.’s motion to dismiss a COVID-19 business interruption claim filed by the owner and operator of a fine dining restaurant. The court concluded that the insured failed to plausibly allege “direct physical loss of or physical damage to” its property, as “courts applying New York law have consistently concluded that loss of use of an insured’s premises does not trigger Business Income coverage when the policy provides that such coverage requires evidence of physical damage or physical loss.” Order at 7-8. The case is Torches on the Hudson, LLC, et al. v. The Sentinel Ins. Co., Ltd., et al.

On September 30, 2021, the district court for the Southern District of Illinois granted The Cincinnati Insurance Company’s motion to dismiss a gaming company’s COVID-19 business interruption claims. Noting that “[t]he vast majority of federal courts to have considered the issue have denied coverage,” the court held the presence of COVID-19 on a business’s premises did not constitute a material change or alteration to the property sufficient to constitute a direct physical loss. Order at 9, 16. The court also held the plaintiff failed to state a claim under its policy’s civil authority provisions because access to the covered premises was not prohibited and, even assuming the presence of COVID-19 could constitute a direct physical loss, the civil authority orders at issue “were in response to the pandemic in general, rather than due to COVID-19 contamination at a nearby property.” Id. at 28. Finally, because the policy did not afford coverage for plaintiff’s claims, the court dismissed the plaintiff’s bad faith claims. Id. at 32. The case is VZA, LLC v. The Cincinnati Ins. Co.

On September 30, 2021, the district court for the Southern District of Illinois granted The Cincinnati Insurance Company’s motion to dismiss an orthodontist practice’s putative COVID-19 business interruption class action. The court held the presence of COVID-19 on a business’s premises did not constitute a material change or alteration to the property sufficient to constitute a direct physical loss. Order at 16-17. The court also held the plaintiff failed to state a claim under its policy’s civil authority provisions because access to the covered premises was not prohibited and, even assuming the presence of COVID-19 could constitute a direct physical loss, the civil authority orders at issue “were in response to the pandemic in general, rather than due to COVID-19 contamination at a nearby property.” Id. at 28-29. Finally, because the policy did not afford coverage for plaintiff’s claims, the court dismissed the plaintiff’s bad faith claims. Id. at 33. The case is Midwest Orthodontic Assocs., Ltd. v. The Cincinnati Cas. Co.

On September 30, 2021, the district court for the Northern District of Illinois granted Cincinnati Insurance Company’s motion to dismiss a country club operator’s COVID-19 business interruption claim. The court concluded that the plain meaning of the policy’s “direct accidental physical loss” requirement was that the policy “require[s] some form of actual physical damage to the insured property to trigger coverage,” Order at 5, and that the insured’s allegation that COVID-19 droplets transformed the air of the property and landed on objects and surfaces “does not translate into a physical alteration, or a tangible or concrete loss or damage.” Id. at 6. The case is Valley Lo Club Ass’n, Inc. v. The Cincinnati Ins. Co.

New Business Interruption Suits Against Insurers:

On November 17, 2021, an event hosting group sued Houston Casualty Company in the U.S. District Court for the District of New Hampshire for a declaratory judgment, breach of contract, reformation, and bad faith. The group sued the insurer for its failure to provide event cancellation coverage when it cancelled events due to the coronavirus outbreak. Complaint ¶ 3. According to the plaintiff, the insurer denied the claim because of a coronavirus exclusion. Id. ¶ 46. The case is International Association of Privacy Processionals, Inc. v. Houston Casualty Co.