Insights

On July 25, 2022, the Fourth Circuit affirmed the dismissal of several Florida restaurants’ COVID-19 business interruption complaints. According to the court, there was “no reversible error.” Order at 3. The case is Skillets, LLC v. Colony Insurance Co.

On March 16, 2022, the Ninth Circuit affirmed the dismissal of a café’s COVID-19 business interruption claim. The court concluded that the California Court of Appeals’ holding in Inns by the Sea v. Cal. Mut. Ins. Co., 286 Cal. Rptr. 3d 576 (Cal. Ct. App. 2021) controlled and, therefore, that the policy did not cover COVID-19 related business losses. Order at 3. The case is Steven Baker, et al. v. Ore. Mut. Ins. Co.

On March 4, 2022, the district court for the Middle District of Florida granted Westchester Surplus Lines Insurance Company’s motion for judgment on the pleadings in a COVID-19 business interruption claim filed by a bakery operator. The court concluded that the policy’s “plain and unambiguous provisions of coverage do not extend to purely economic harms without accompanying physical property damage.” Order at 1. The court further found that the plaintiff failed to plausibly allege that it suffered a covered cause of loss because its losses were not physical, and “[n]o matter how dangerous coronavirus may be to human health, virus particles do not and cannot cause direct physical loss or damage to property.” Id. at 6. The case is Walsh Haupt & Assocs., Inc. v. Westchester Surplus Lines Ins. Co.

On March 7, 2022, the Fourth Circuit affirmed the dismissal of a creative events business’ COVID-19 business interruption claim. The court held that, under West Virginia law, “the policy language requiring a ‘physical loss’ or ‘physical damage’ unambiguously covers only losses caused by, or relating to, material destruction or material harm to the covered property.” Opinion at 1. Moreover, “[a]ny alternative meaning of the terms ‘physical loss’ or ‘physical damage’ that does not require a material alteration to the property would render meaningless this pre-condition to coverage for business income loss.” Id. at 10-11. Thus, dismissal was appropriate because “neither the closure order nor the Covid-19 virus caused present or impending material destruction or material harm that physically altered the covered property requiring repairs or replacement so that they could be used as intended.” Id. at 12-13. The case is Uncork & Create LLC v. The Cincinnati Ins. Co., et al.

On January 13, 2022, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s order dismissing several delicatessens’ COVID-19 business interruption complaint against Cincinnati Insurance Company. Finding the parties’ arguments are foreclosed by the Second Circuit’s recent decision in 10012 Holdings, Inc. v. Sentinel Insurance Co. because the policy terms “are not materially different from” the policyholder’s in 10012 Holdings, the court held the delis did not plead any physical damage to their insured property. Order at 3. The case is Rye Ridge Corp. v. Cincinnati Insurance Co.

On October 14, 2021, the Supreme Court of New York, New York County, granted Lexington Insurance Company’s, Arch Specialty Insurance Company’s, Aspen Specialty Insurance Company’s, Ategrity Specialty Insurance Company’s, Allied World National Assurance Company’s, Evanston Insurance Company’s, Starr Specialty Lines Insurance Agency’s, and Interstate Fire & Casualty Company’s motion to dismiss a furniture company’s COVID-19 business interruption claim. The court concluded that there was no “direct physical loss, damage or destruction” to property caused by COVID-19, and that “Covid-19 and any of the essential hygiene procedures necessary to facilitate the operation of [the business] simply does not constitute anything covered by the policies.” Order at 1. The court further found that it was “clear that were this not to be the case, the pollution and contamination exclusion would still apply.” Id. at 2. The case is Raymours Furniture Co. Inc. v. Lexington Ins. Co., et al.

On July 7, 2021, the Circuit Court of Cook County, Illinois granted with prejudice State Farm Fire and Casualty Company’s motion to dismiss Unique Concepts, LLC’s COVID-19 business interruption class action complaint. The court found that the policy’s virus exclusion barred coverage, as the exclusion applies, not only when a virus causes loss, but “also applies when the [COVID-19] closure orders caused the loss.” Transcript at 14. The court determined that the closure orders would not have occurred absent the virus and that it made “no difference that the virus exclusion doesn’t use the word pandemic.” Id. at 15.

On June 3, 2021, the district court for the District of Connecticut granted Hartford Fire Insurance Company’s motion to dismiss a hospitality group’s putative nationwide class action complaint for COVID-19 related damages. The court held that the losses sustained from government closure orders do not trigger civil authority coverage because the group failed to plead how the orders caused property damage, “a condition precedent to triggering Business Income and Extra Expense coverage under the Policy.” Order at 9. Showing no specific lost or damaged property or prohibited access by the orders, the group could not meet its burden of showing “demonstrable physical harm,” which was unambiguously required under the policy. Id. at 9-10. Because the orders were issued to limit the spread of the coronavirus and promote social distancing rather than because of physical damage in the immediate area, the orders did not trigger the civil authority provision. Id. at 20.

The Institute for Security and Technology (IST) recently released recommendations aimed at combating the growing threat of ransomware, proposing a comprehensive framework focused on regulatory and diplomatic ideas designed to disrupt the threat, and to assist organizations prepare for and respond to ransomware attacks. Ransomware crimes pose significant legal challenges that continue to evolve alongside the threat itself, as efforts to combat ransomware attacks, such as those proposed by the IST, are developed and implemented. Organizations should remain mindful of this quickly-evolving legal landscape.

On December 23, 2020, the federal district court for the Middle District of Tennessee granted Admiral Indemnity Company’s motion to dismiss a restaurant’s COVID-19 business interruption complaint. First, the court held that all claims for coverage were precluded by the policy’s virus exclusion. Order at 8-12. Second, the court held that even if the exclusion did not apply, the claim would not be covered because the plaintiff did not allege that the suspension of its business operations were caused by “direct physical loss of or damage to property.” Id. at 12-17. Lastly, the court rejected the plaintiff’s argument that its claim was covered by the policy’s civil authority clause, because (1) the virus did not cause actual physical damage to the covered property, (2) the closure orders were issued to control the spread of the virus, not because of “dangerous physical conditions” at a neighboring property, and (3) the closure orders did not prohibit physical access to the plaintiff’s restaurant or the area around it. Id. at 18.

On October 7, 2020, the U.S. District Court for the Northern District of Texas granted Cincinnati Insurance Company’s motion to dismiss a restaurant group’s complaint for COVID-19 business interruption losses. The court concluded that the plaintiff failed to plead that it suffered a direct physical loss or damage and therefore could not state a claim for breach of contract due to the conclusory nature of its allegations. Order at 2. The declaratory judgment claim failed for the same reason. Id. at 4-5. The court granted the plaintiff leave to replead because its complaint had been filed under Texas state pleading rules prior to the case being removed to federal court and the court determined that it should be allowed an opportunity to replead under the federal pleading standards.  Id. at 6. 

EDIT The U.S. Food and Drug Administration (FDA) walked back its policy that allowed COVID-19 antibody test kits to enter the market without agency review. In its original March 16 Final Guidance, FDA allowed commercial manufacturers to market and sell antibody test kits after internally validating their own products and notifying FDA. The Agency did not require emergency use authorization (EUA) as it did with PCR (molecular) testing, though seeking an EUA was “encouraged.”