Insurers' COVID-19 Notepad: What You Need to Know Now (Week of October 19)

Federal Court Dismisses COVID-19 Business Interruption Claim

On October 9, 2020, the U.S. District Court for the Middle District of Florida granted Southern-Owners Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by a wine and beer distributor. The court found that the plaintiff had sufficiently pleaded that it suffered a “direct physical loss or damage” by alleging that its beer spoiled when its customer, Walt Disney Parks and Resorts, voluntarily closed due to the pandemic and refused to accept its product. (Order at 6-7). Nevertheless, the Court held that the complaint failed to state a claim because it alleged only that the plaintiff’s customer, Disney, suspended its operations, not that the plaintiff suspended its own operations, and there was no indication that the plaintiff was unable to purchase beer from suppliers or sell beer to other willing buyers.  Order at 8.

New Business Interruption Suits Against Insurers:

The owner of fitness centers in Tennessee sued Markel Insurance Company and its insurance broker in federal court (M.D. Tenn.), asserting claims for declaratory relief, breach of contract, negligence, and breach of fiduciary duty. The policies at issue allegedly provide business income coverage. Complaint at ¶¶ 15, 18, 21. The policies also contained a virus exclusion. Id. at ¶¶50-52. The Complaint alleges that the defendants misrepresented and wrongfully denied coverage. Id. at ¶¶38-44.

The owner of a real investment trust and several hotel properties in various states sued its various insurers in Texas state court (Travis County), asserting claims for breach of contract, violations of the Texas Prompt Pay Act, and declaratory relief. The “all risk” policy allegedly provides business income, extra expense, ingress/egress, civil authority, contingent business interruption/extra expense, rental value and rental income, debris removal and cost of cleanup, pollutant cost of cleanup, soft costs, miscellaneous property, loss adjustment expenses, and sue and labor coverage. Complaint at ¶¶64-74. The Complaint alleges that the plaintiff has had “roughly 35 reported instances of either hotel employees or hotel guests testing positive for COVID-19 across numerous states.” Id. at ¶59.  The Complaint further alleges that the defendants wrongfully denied the plaintiff’s claim for coverage without conducting an investigation. Id. at ¶¶ 103-110.

The owner of various luxury hotels, restaurants, retail outlets, and spas in Washington state sued Fireman’s Fund Insurance Company in federal court (W.D. Wash.), asserting claims for violations of the state Insurance Fair Conduct Act, bad faith, negligence, breach of contract, violation of the state Consumer Protection Act, and declaratory relief. The “all risk” policy allegedly provides business income, extra expense, extended business income, business access, civil authority, and communicable disease coverage. Complaint at ¶¶ 35. The Complaint alleges that the defendant wrongfully and in bad faith denied the plaintiffs’ claim for coverage. Id. at ¶¶ 72-74.

The operator of a family of restaurants sued Zurich American Insurance Company in federal court (M.D. Fla.) for declaratory relief and breach of contact. The “all risk” policy allegedly provides business income and civil authority coverage. Complaint at ¶¶ 35-36. The Complaint alleges that the plaintiff’s loss of use of insured property due to COVID-19 closure orders and its “inability to function as intended by Plaintiff and Defendant is a direct physical loss.” Id. at ¶ 38.

The owner of a restaurant sued Certain Underwriters at Lloyd’s London in Florida state court (Hillsborough County)for breach of contract and declaratory relief. The “all risk” policy allegedly provides business interruption, extra expense, and civil authority coverage. Complaint at ¶¶ 5-7. The Complaint alleges that the “presence of COVID-19 caused direct physical loss of and/or damage to the covered premises under the Policy by, among other things, damaging the property, denying access to the property, preventing customers from physically occupying the property, causing the property to be physically uninhabitable by customers, causing its function to be nearly eliminated or destroyed, and/or causing a suspension of business operations on the premises.” Id. at ¶ 44.

The operator of a bar and grill sued Society Insurance Company in federal court (N.D. Ill.) for declaratory relief and breach of contract. The “all risk” policy allegedly provides business interruption, extra expense, and civil authority coverage. Complaint at ¶ 2. The Complaint alleges that the “presence of coronavirus in the air and its attachment to surfaces of the premises constitutes direct physical damage to the premises because it renders the property unsafe for human occupancy and continued use.” Id. at ¶ 43.

The operator of an automobile dealership sued Great Northern Insurance Company in federal court (E.D.N.Y.) for breach of contract. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶¶ 30-32. The Complaint alleges that the plaintiff suffered a direct physical loss of and damage to its property because it was unable to use its property for its intended purpose as a result of COVID-19 closure orders and had the insurer “wished to exclude from coverage as ‘physical loss’ loss of use of property that has not been physically altered, it could have used explicit language stating such a definition of ‘physical loss’” but did not do so. Id. at ¶¶ 36, 38.

The operator of a group of restaurants sued North American Elite Insurance Company in New York state court (Albany County) for declaratory relief, breach of contract, and unjust enrichment. The “all risk” policy allegedly provides business interruption and extra expense coverage. Complaint at ¶ 9. The Complaint alleges that the term “direct physical loss or damage” includes detrimental physical effects such as those caused by COVID-19 closure orders “which altered, and impaired the functioning of, the tangible, material dimensions of Plaintiff’s property.” Id. at ¶ 13.

A real estate development firm sued Greenwich Insurance Company in federal court (S.D.N.Y.) for breach of contract. The “all risk” policy allegedly provides business interruption, extra expense, contingent business interruption, and pollution coverage. Complaint at ¶¶ 21-24. The Complaint alleges that the plaintiff suffered losses resulting from the failure of tenants to pay rent due to COVID-19 closure orders and that the insurer failed to either accept or reject its claim in a timely manner. Id. at ¶¶ 47, 55.

A San Francisco commercial property owner sued Falls Lake Fire and Casualty Company in California state court (San Francisco Cty.) alleging the insurer wrongfully denied its claim for business interruption losses due to California’s COVID-19 closure orders. The “all-risk” policy allegedly provides Loss of Income, Extra Expense, Civil Authority, and Ingress/Egress coverages. The owner alleges that the closure orders made “the property unfit for the purposes for which they were leased . . . ma[king] the property untenantable. Therefore, under commonly accepted English usage, Plaintiff has suffered both ‘loss of’ and ‘damage to’ its insured premises, resulting in ‘untenantability’ of Plaintiff’s property.”