With over 1400 lawsuits filed by policyholders against their insurance companies for COVID-19 losses, insurance companies have racked up several wins. Nevertheless, below are several cases where policyholders have found success.
In response to claims of policyholders with COVID-19 losses, insurers have raised several arguments to defeat coverage including: (1) there was no “direct physical loss of or damage to property”; and (2) there is no coverage because the policy contains exclusions (i.e., the virus exclusion and the contamination exclusion). Numerous courts have awarded wins to insurance carriers making these arguments, but recently some courts have provided some wins for the policyholders.
The court in Studio 417 Inc. v. Cincinnati Insurance Co., 2020 U.S. Dist. LEXIS 147600 (W.D. MO Aug. 12, 2020) denied Cincinnati Insurance Company’s motion to dismiss and held that the complaint had adequately pled a “direct physical loss” because the COVID-19 virus is a physical substance that “attached to and deprived plaintiffs of their property. . ”
The court in Urogynecology Specialist of Florida LLC v. Sentinel Ins. Co., Ltd., 2020 U.S. Dist. LEXIS 184774 (M.D. Fla. Sept 24, 2020) rejected the mold and bacteria exclusion as a ground to bar COVID-19 claims and denied Sentinel Insurance Company’s motion to dismiss.
A North Carolina state court granted partial summary judgment to a policyholder and recognized that “loss” and “damage” are different and, as such, provide independent grounds for coverage. See North State Deli, LLC v. The Cincinnati Insurance Co., 2020 Super. LEXIS 38 (Sup. Ct. N.C. Oct. 7, 2020). In its decision the court stated:
Additionally, it is not clear that the plain language of the policy ambiguously and necessarily excluded Plaintiff’s losses. The virus exclusion states that Sentinel will not pay for loss or damage caused directly or indirectly by the presences, growth, proliferation, spread or any activity of “fungi, wet rot, dry rot, bacteria or virus.” (Id.). Denying coverage for losses stemming from COVID-19, however, does not logically align with the grouping of the virus exclusion with outer pollutants such that the Policy necessarily anticipated and intended to deny coverage for these kinds of business losses.
The court also found it significant that the impact that COVID-19 had on society rendered inapplicable the precedent relied upon by Cincinnati Insurance Company.
A Philadelphia court in Taps & Bourbon on Terrace, LLC v. Underwriters at Lloyds, London, No. 375 (Penn. Ct. Common Pleas Oct. 26, 2020) disregarded the insurance company’s reliance on the insurance policy’s virus exclusion and held that it would be premature to dismiss the plaintiff’s claim for business interruption losses since the law and facts continue to develop in COVID-19 claims.
In Hill and Stout PLLC v. Mutual of Enumclaw Insurance Company, 2020 WL 6784271 (Wash. Sup. Ct. King Cty. November 13, 2020), the court noted the difference in the phrase “physical loss of or damage to” property and held that this language provided alternative means to coverage – either physical loss of property or damage to property. In its analysis, the court found that the physical loss language was ambiguous and construed coverage in favor of the policyholder.
The policyholder in Perry St. Brewing Co., Inc. v. Mut. Of Enumclaw Ins. Co., 2020 WL 7258116 (Wash. Super. Ct. Spokane Cty November 23, 2020) received a decision on the merits when the court held that the policyholder’s argument that “direct physical loss” of property included the inability to use the property for its intended use was reasonable and that the policyholder had suffered a loss when it “lost the ability to use its property at premises for its intended purpose.” See Slip op. at 3.
A federal court ruled in favor of the policyholder in Elegant Massage, LLC v. State Farm Mutual Auto Ins. Co., 2020 U.S. Dist. LEXIS 231935 (E.D. Va. Dec. 9, 2020). The court held that “direct physical loss” is ambiguous” and can be interpreted several ways, including that there is no requirement of structural damage. The court also held that the virus exclusion was inapplicable because “the Executive Orders specifically classified Plaintiff’s type of property, a spa, as a hotspot for COVID-19 and, thus, selectively ordered that it be closed as a preventative health measure.”
An Oklahoma state court granted partial summary judgment in favor of the Cherokee Nation with respect to its COVID-19 business interruption claim in Cherokee Nation v. Lexington Ins. Co. (D.Ct. Cherokee Co. Okla. Jan. 14, 2021). The Cherokee Nation argued that its losses (the inability to use several tribal businesses and services) were rendered unusable for their intended purposes and were, therefore, covered under their insurance policy which provided coverage for “all risk of direct physical loss or damage.” The Cherokee Nation further argued that there is a distinction between “physical loss” and “physical damage.” There was no communicable disease exclusion in the policy, which the Cherokee Nation noted to the court. The court held that there was a “plausible claim” under the business interruption coverage of the policy.
On January 15, 2021 the U.K. Supreme Court in the case The Financial Conduct Authority v. Arch Insurance and Others, [2021] UKSC 1 ruled in favor of the Financial Conduct Authority (“FCA”) and held that insurance carriers must provide coverage to companies that were forced to close during the first lockdown. The FCA brought the test case by suing eight insurance carriers with 21 policy wordings in order to get an “authoritative declaratory judgment” that would have wide application beyond the policy wording at issue.
The case dealt with the non-damage extensions added to business interruption insurance coverage. These extensions provide coverage if a business is forced to close because of an infectious disease outbreak within a specified radius (often up to 25 miles) of a company’s premises. The Court found that if there was even a single case of COVID-19 within the radius which caused the business interruption losses, there was coverage. In addition, the Court held that even businesses that closed when the Prime Minister warned that businesses should close due to COVID-19, which was prior to the lockdown order from the legislature, were entitled to coverage. The Court also held that restaurants that suffered damages because they could only offer take-out food were entitled to coverage under their policies since the restaurants were unable to use their premises for a discrete business activity or were unable to use a discrete part of the premises for their business activities (i.e., dining in).
U.S. District Judge Polster issued an Opinion and Order in Henderson Road Restaurant Systems, Inc. v. Zurich American Ins. Co. (N.D. Ohio, Jan. 19, 2021) ruling that the shut-down orders by governmental authorities were covered losses as claimed by several steak and seafood restaurants. Judge Polster rejected Zurich Insurance Company’s argument that tangible structural damage to the restaurants was a prerequisite to satisfy the insurance policy’s requirement that business income losses be tied to “direct physical loss of or damage to” property. In discussing ambiguity in the policy language, Judge Polster held that the business income provision could be read to extend coverage when the policyholder loses its ability to use the insured premises for its intended purpose. Thus, when the various state and local governments issued pandemic closure orders, which temporarily prohibited the restaurants from offering in-person dining, those orders caused the restaurants to lose their real property. (On the same day, in Neuro-Communication Services Inc. v. Cincinnati Insurance Co., No. 4:20-CV1275 (N.D. Ohio) another Ohio federal court judge, Judge Benita Pearson, asked the Ohio Supreme Court to certify whether the existence of COVID-19 on a property or in an infected person’s presence constitutes direct physical loss or damage resulting in property damage covered by insurance policies. Judge Pearson expressed concern that “differing interpretations of Ohio contract law by different courts threaten to undermine the uniform application of that law to similarly situated litigants.” The policyholder, Neuro-Communication Services, had to cease operations in for a period of time in the spring of 2020 as a result of COVID-19 and suffered significant business income interruptions as a result.)
These are just a few of the pro-policyholder wins. Courts continue to focus on the allegations made by the policyholder and the specific policy language at issue in reaching their decisions. With over 1400 pending cases, the case law continues to develop.
It is important for policyholders to carefully review their policies and consult with an insurance attorney or an experienced risk management consultant to ensure that the policy language and coverage issues are carefully analyzed so that strong coverage arguments can be made.
The court in Studio 417 Inc. v. Cincinnati Insurance Co., 2020 U.S. Dist. LEXIS 147600 (W.D. MO Aug. 12, 2020) denied Cincinnati Insurance Company’s motion to dismiss and held that the complaint had adequately pled a “direct physical loss” because the COVID-19 virus is a physical substance that “attached to and deprived plaintiffs of their property. . ”
The court in Urogynecology Specialist of Florida LLC v. Sentinel Ins. Co., Ltd., 2020 U.S. Dist. LEXIS 184774 (M.D. Fla. Sept 24, 2020) rejected the mold and bacteria exclusion as a ground to bar COVID-19 claims and denied Sentinel Insurance Company’s motion to dismiss.
A North Carolina state court granted partial summary judgment to a policyholder and recognized that “loss” and “damage” are different and, as such, provide independent grounds for coverage. See North State Deli, LLC v. The Cincinnati Insurance Co., 2020 Super. LEXIS 38 (Sup. Ct. N.C. Oct. 7, 2020). In its decision the court stated:
Additionally, it is not clear that the plain language of the policy ambiguously and necessarily excluded Plaintiff’s losses. The virus exclusion states that Sentinel will not pay for loss or damage caused directly or indirectly by the presences, growth, proliferation, spread or any activity of “fungi, wet rot, dry rot, bacteria or virus.” (Id.). Denying coverage for losses stemming from COVID-19, however, does not logically align with the grouping of the virus exclusion with outer pollutants such that the Policy necessarily anticipated and intended to deny coverage for these kinds of business losses.
The court also found it significant that the impact that COVID-19 had on society rendered inapplicable the precedent relied upon by Cincinnati Insurance Company.
A Philadelphia court in Taps & Bourbon on Terrace, LLC v. Underwriters at Lloyds, London, No. 375 (Penn. Ct. Common Pleas Oct. 26, 2020) disregarded the insurance company’s reliance on the insurance policy’s virus exclusion and held that it would be premature to dismiss the plaintiff’s claim for business interruption losses since the law and facts continue to develop in COVID-19 claims.
In Hill and Stout PLLC v. Mutual of Enumclaw Insurance Company, 2020 WL 6784271 (Wash. Sup. Ct. King Cty. November 13, 2020), the court noted the difference in the phrase “physical loss of or damage to” property and held that this language provided alternative means to coverage – either physical loss of property or damage to property. In its analysis, the court found that the physical loss language was ambiguous and construed coverage in favor of the policyholder.
The policyholder in Perry St. Brewing Co., Inc. v. Mut. Of Enumclaw Ins. Co., 2020 WL 7258116 (Wash. Super. Ct. Spokane Cty November 23, 2020) received a decision on the merits when the court held that the policyholder’s argument that “direct physical loss” of property included the inability to use the property for its intended use was reasonable and that the policyholder had suffered a loss when it “lost the ability to use its property at premises for its intended purpose.” See Slip op. at 3.
A federal court ruled in favor of the policyholder in Elegant Massage, LLC v. State Farm Mutual Auto Ins. Co., 2020 U.S. Dist. LEXIS 231935 (E.D. Va. Dec. 9, 2020). The court held that “direct physical loss” is ambiguous” and can be interpreted several ways, including that there is no requirement of structural damage. The court also held that the virus exclusion was inapplicable because “the Executive Orders specifically classified Plaintiff’s type of property, a spa, as a hotspot for COVID-19 and, thus, selectively ordered that it be closed as a preventative health measure.”
An Oklahoma state court granted partial summary judgment in favor of the Cherokee Nation with respect to its COVID-19 business interruption claim in Cherokee Nation v. Lexington Ins. Co. (D.Ct. Cherokee Co. Okla. Jan. 14, 2021). The Cherokee Nation argued that its losses (the inability to use several tribal businesses and services) were rendered unusable for their intended purposes and were, therefore, covered under their insurance policy which provided coverage for “all risk of direct physical loss or damage.” The Cherokee Nation further argued that there is a distinction between “physical loss” and “physical damage.” There was no communicable disease exclusion in the policy, which the Cherokee Nation noted to the court. The court held that there was a “plausible claim” under the business interruption coverage of the policy.
On January 15, 2021 the U.K. Supreme Court in the case The Financial Conduct Authority v. Arch Insurance and Others, [2021] UKSC 1 ruled in favor of the Financial Conduct Authority (“FCA”) and held that insurance carriers must provide coverage to companies that were forced to close during the first lockdown. The FCA brought the test case by suing eight insurance carriers with 21 policy wordings in order to get an “authoritative declaratory judgment” that would have wide application beyond the policy wording at issue.
The case dealt with the non-damage extensions added to business interruption insurance coverage. These extensions provide coverage if a business is forced to close because of an infectious disease outbreak within a specified radius (often up to 25 miles) of a company’s premises. The Court found that if there was even a single case of COVID-19 within the radius which caused the business interruption losses, there was coverage. In addition, the Court held that even businesses that closed when the Prime Minister warned that businesses should close due to COVID-19, which was prior to the lockdown order from the legislature, were entitled to coverage. The Court also held that restaurants that suffered damages because they could only offer take-out food were entitled to coverage under their policies since the restaurants were unable to use their premises for a discrete business activity or were unable to use a discrete part of the premises for their business activities (i.e., dining in).
U.S. District Judge Polster issued an Opinion and Order in Henderson Road Restaurant Systems, Inc. v. Zurich American Ins. Co. (N.D. Ohio, Jan. 19, 2021) ruling that the shut-down orders by governmental authorities were covered losses as claimed by several steak and seafood restaurants. Judge Polster rejected Zurich Insurance Company’s argument that tangible structural damage to the restaurants was a prerequisite to satisfy the insurance policy’s requirement that business income losses be tied to “direct physical loss of or damage to” property. In discussing ambiguity in the policy language, Judge Polster held that the business income provision could be read to extend coverage when the policyholder loses its ability to use the insured premises for its intended purpose. Thus, when the various state and local governments issued pandemic closure orders, which temporarily prohibited the restaurants from offering in-person dining, those orders caused the restaurants to lose their real property. (On the same day, in Neuro-Communication Services Inc. v. Cincinnati Insurance Co., No. 4:20-CV1275 (N.D. Ohio) another Ohio federal court judge, Judge Benita Pearson, asked the Ohio Supreme Court to certify whether the existence of COVID-19 on a property or in an infected person’s presence constitutes direct physical loss or damage resulting in property damage covered by insurance policies. Judge Pearson expressed concern that “differing interpretations of Ohio contract law by different courts threaten to undermine the uniform application of that law to similarly situated litigants.” The policyholder, Neuro-Communication Services, had to cease operations in for a period of time in the spring of 2020 as a result of COVID-19 and suffered significant business income interruptions as a result.)
These are just a few of the pro-policyholder wins. Courts continue to focus on the allegations made by the policyholder and the specific policy language at issue in reaching their decisions. With over 1400 pending cases, the case law continues to develop.
It is important for policyholders to carefully review their policies and consult with an insurance attorney or an experienced risk management consultant to ensure that the policy language and coverage issues are carefully analyzed so that strong coverage arguments can be made.
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