Insurers' COVID-19 Notepad: What You Need to Know Now (Week of March 15)

Courts Dismiss COVID-19 Business Interruption Claims

On March 8, 2021, the district court for the Southern District of California granted Travelers Property Casualty Company of America’s motion to dismiss a flower importer and distributor’s COVID-19 extra expense claim. The court found that the policy’s Acts or Decisions Exclusion which “bars coverage for property damage, loss, and expense that is caused by or results from any decision, act or failure to act or decide, by…any ‘governmental body,’” unambiguously excluded coverage. See Order at 13. Because Travelers based its denial of coverage on the applicable exclusion, the court similarly dismissed the plaintiff’s breach of implied covenant of good faith and fair dealing claim. Id. at 14.

On March 10, 2021, the district court for the Eastern District of Kentucky granted Twin City Fire Insurance Company’s motion for judgment on the pleadings of a sportwear store’s lawsuit seeking business interruption losses related to the pandemic. The court held that the policy’s virus exclusion plainly and unambiguously delineated that any losses caused by a virus were barred from coverage. Order at 10. The court rejected the plaintiff’s argument that the insurer owed coverage because pandemics were not specifically excluded in the policy. Id. at 6.

On March 9, 2021, the district court for the District of Massachusetts granted Greater New York Mutual Insurance Company’s motion to dismiss two Boston restaurants’ proposed class action for COVID-19 related losses. The court held the properties did not suffer physical loss or damage from the “presence or threat of” virus contamination or shutdown orders rendering the properties unusable for their intended purpose. Order at 16. According to the court, the virus “does not physically alter the appearance, shape, color, structure, or other material dimension of the property.” Id. at 13. And while the government orders may have caused the restaurants to reduce their traffic, there was no “direct physical loss or damage.” Id. at 18. The orders did not bar the owners from accessing the property; they only prevented some uses while allowing others, such as take-out and delivery. Id. at 24. Additionally, the governor issued the orders to the entire state to slow the spread of the virus rather than singling out any particular business contaminated with the coronavirus. Id. at 18.

On March 5, 2021, the district court for the District of Massachusetts granted Strathmore Insurance Company’s motion to dismiss a restaurant chain’s COVID-19 related business interruption complaint. The court held that the plaintiff did not “plausibly allege that its business interruption resulted from the presence of COVID-19 at the Designated properties.” Order at 7. Rather, it was government business closure orders that caused the losses, and those orders did not constitute a “direct physical loss.” Id. at 7, 11. Moreover, the court found, plaintiffs “fail[ed] to identify any specific [civil authority order] that expressly and completely prohibited access to any of the Designated properties, precluding coverage under the policy’s civil authority provisions. Id. at 13–14. Finally, the court also dismissed the plaintiff’s unfair and deceptive trade practices claim because Strathmore correctly denied coverage under the policy. Id. at 15.

On March 6, 2021, the district court for the Southern District of New York granted Sentinel Insurance Company’s motion to dismiss a catering business’s COVID-19 related business interruption complaint. Because the plaintiff only alleged that it sustained business income losses due to “government-mandated closure orders,” the court held that the plaintiff failed to plead facts sufficient to establish that it suffered a direct loss or physical damage to its property. Order at 11. The court also rejected the plaintiff’s civil authority claim because none of the business closure orders “‘specifically prohibited’ access to the plaintiff’s property.” Id. at 16. Moreover, the court noted, it was not enough that the applicable orders “prohibited access to [plaintiff’s] ‘property for its intended purpose’” because the policy only covered civil authority orders that deny “all access to the insured property, not simply its full use.” Id. at 17.

On March 4, 2021, the district court for the Eastern District of North Carolina granted Cincinnati Insurance Company’s motion to dismiss a hospitality group’s COVID-19 business interruption complaint. The court held that based on a plain reading of the policy, there must be a “direct physical loss or damage to” the plaintiff’s property for coverage to trigger. Order at 6. According to the court, adopting an alternate interpretation “would allow for intangible damage to trigger coverage [and] render other sections of the provision ineffective.” Id. at 7. Nor did the plaintiff allege that it was denied access to the property, only that it was restricted from accessing the property, but the court found that “restricted access is not the same as denied access.” Id. at 7–8. Finally, the court held the civil authority interruption provision did not apply because the plaintiff did not allege that the coronavirus was present on the property. Id. at 8.

On March 5, 2021, the federal district court for the District of Arizona granted Cincinnati Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by the owners of three restaurants. The court concluded that the policy language unambiguously required “actual physical damage to Plaintiffs’ property for coverage to apply,” Order at 9, and that the need to merely clean surfaces does not constitute actual physical damage. Id. at 10. 

On March 8, 2021, the federal district court for the Southern District of Indiana granted Emcasco Insurance Company’s and Union Insurance Company of Providence’s motion to dismiss a COVID-19 business interruption claim filed by the operators of various hotels. The court concluded that the phrase “direct physical loss” refers to “a loss that requires the insured to repair, rebuild, or replace property that has been tangibly, physically altered – not the insured’s loss of use of that property,” Order at 11, and that the plaintiffs had failed to plead a direct physical loss, because their losses stemmed from governmental efforts to slow the spread of COVID-19, not a direct physical loss of their property that required them to repair, rebuild, or replace the property. Id. at 12. The court further found that the policy’s virus exclusion bars coverage. Id. at 14-15.

On March 10, 2021, the federal district court for the Eastern District of Virginia granted Colony Insurance Company’s motion to dismiss a COVID-19 business interruption claim filed by restaurant operators. The court concluded that the plaintiffs failed to plead a direct physical loss due to COVID-19 or related closure orders “because neither physically altered [the plaintiffs’] restaurants.” Order at 12.

New Business Interruption Class Actions:

The owner and operator of a restaurant filed a class action complaint against Certain Underwriters at Lloyd’s, London in Florida state court (Palm Beach County) for declaratory relief. The “all risk” policy allegedly provides business income, extra expense, and civil authority coverage. Complaint at ¶18. The Complaint alleges that the “COVID-19 pandemic caused direct physical loss of or damage to the Covered Property under the Policy by denying use of and damaging the Covered Property and by causing a necessary suspension of operations during the period of restoration.” Id. at ¶ 32. The proposed class is defined as “[a]ll restaurants that have suffered business interruption and lost income as a result of Civil Authority Orders issued in response to the COVID-19 pandemic.” Id. at ¶ 92.

New Business Interruption Suits Against Insurers:

The owner of a job referral and search website sued Continental Casualty Company in Texas state court (Travis County) for breach of contract and prompt payment. The plaintiff’s all-risk policy allegedly provides, among other things, business interruption, civil authority, extra expense, and leasehold interest coverage. Complaint at ¶¶ 14–20. The complaint alleges plaintiffs suffered covered losses because COVID-19 civil authority orders caused limited the usefulness of its office spaces, diminished staff productivity, and increased costs due to the nature of remote work and retrofitting and reopening offices. Id. at ¶ 12.

A public hospital district sued American Guarantee and Liability Insurance Company in federal court (W.D. Wash.) for declaratory judgment. Specifically, plaintiff seeks a declaration that American Guarantee “is responsible for timely and fully paying [plaintiff’s COVID-19 civil authority-related] loss” and that plaintiffs’ “suit is not time-barred by the policy or otherwise.” Complaint at ¶¶ 5.2, 7.1. The does not detail the plaintiff’s insurance coverage, but it alleges that American Guarantee agreed to toll the applicable one-year suit limitations clause “only ‘to the extent that such limitation period has not already run.’” Id. at ¶ 1.1.

A tribal authority that owns and operates a casino sued Affiliated FM Insurance Company (AFM) in Washington state court (King County) for declaratory judgment, breach of contract, bad faith, and alleged violations of the Washington Consumer Protection Act. Plaintiff’s all risk policy allegedly provides property, business interruption, communicable disease, civil authority, and decontamination cost coverage. Complaint at ¶ 3.7. The complaint alleged the casino suffered covered losses in the “millions of dollars” due to closure orders passed by the governing tribal council and state government, but AFM “determined that only $ 100,000 in Communicable Disease Coverage was available” under the policy. Id. at ¶¶ 3.1, 3.25–28.

The operator of an arena, the owner of a hotel, and the owner of a retail space sued Factory Mutual Insurance Company in federal court (E.D. Cal.) for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. The “all risk” policy allegedly provides time element, civil authority, and communicable disease response coverage. Complaint at ¶¶ 34-38. The Complaint alleges that the “presence of the coronavirus and COVID-19, including but not limited to coronavirus droplets or nuclei on solid surfaces and in the air at insured property, has caused and will continue to cause physical damage to physical property and ambient air at those premises.” Id. at ¶ 72.

The Regents of the University of Colorado sued Factory Mutual Insurance Company in Colorado state court (Boulder County) for declaratory relief, breach of contract, and violation of C.R.S. §§ 10-3-1115 and 10-3-1116. The “all risk” policy allegedly provides time element, extra expense, law and order, and protection and preservation of property coverage. Complaint at ¶ 27. The Complaint alleges that “COVID-19’s presence at the Properties caused physical loss and/or physical damage to such Properties in an amount and for a duration to be proven at trial, requiring, among other things, closure of the Properties, restriction of access to the Properties, payment for, among other things, extra cleaning and sanitizing, improved ventilation, restructuring within the Properties to accommodate for social distancing requirements, and testing at the Properties.” Id. at ¶ 82. The Complaint further alleges that the insurer has unreasonably delayed in acknowledging coverage for the claim and refused to enter into a tolling agreement, which “amounts to an unreasonable denial of coverage for the Claim.” Id. at ¶ 70.

The operators of a non-profit children’s hospital sued Continental Casualty Company and CNA Financial Corporation in federal court (D. Conn.) for declaratory relief, breach of contract, and breach of the covenant of good faith and fair dealing. The “all risk” policy allegedly provides business interruption, extra expense, and disease contamination coverage. Complaint at ¶¶ 24-26. The Complaint alleges that “[l]oss of use of property due to the presence of SARS-CoV-2 or the imminent risk of the presence of SARS-CoV-2 constitutes direct physical loss of or damage to property for purposes of first-party property insurance.” Id. at ¶ 58.

The operators of medical practices sued Continental Casualty Company and CNA Financial Corporation in federal court (D. Conn.) for breach of contract and breach of the covenant of good faith and fair dealing. The “all risk” policies allegedly provide business income, extra expense, sue and labor, and civil authority coverage. Complaint at ¶¶ 33-37. The Complaint alleges that the plaintiffs “suffered direct physical loss of or damage to Covered Property caused by or resulting from the possible presence of a deadly virus or the imminent risk of such on-site contamination, or government orders limiting the use of the Plaintiffs’ properties and stay at home orders or some combination of the foregoing,” Id. at ¶ 59, and that if the insurer “had wished to exclude loss of use of property that has not been physically altered or deformed, it could have used explicit language stating such a definition, but it did not do so.” Id. at ¶ 73.

The operators of medical practices sued Massachusetts Bay Insurance Company, Citizens Insurance Company of America, and the Hanover Insurance Group in federal court (D. Conn.) for breach of contract, breach of the covenant of good faith and fair dealing, and violation of the Connecticut Unfair Insurance Practices Act. The “all risk” policies allegedly provide business income, extra expense, and civil authority coverage. Complaint at ¶¶ 33-38. The Complaint alleges that the plaintiffs “suffered direct physical loss of or damage to Covered Property caused by the off-site Pandemic and the suspension of limitation of operations to protect patients and health care providers from the pandemic” and from “the governmental orders limiting the use of Plaintiffs’ properties and stay at home orders or some combination of the foregoing.” Id. at ¶¶ 51-52.

The operators of healthcare facilities sued Twin City Fire Insurance Company, Sentinel Insurance Company, Hartford Fire Insurance Company, Ltd. and the Hartford Financial Services Group, Inc. in Connecticut state court (District of Hartford) for declaratory relief, breach of contract, breach of the covenant of good faith and fair dealing, and violation of the Connecticut Unfair Insurance Practices Act. The “all risk” policy allegedly provides business income, extra expense, civil authority, and sue and labor coverage. Complaint at ¶¶ 4-7. The Complaint alleges that the plaintiffs “have suspended and/or limited operations at the Covered Properties, in compliance with emergency orders, thereby incurring direct physical loss of use of the Covered Properties.” Id. at ¶ 44.

A real estate investment management company sued ACE American Insurance Company, Continental Casualty Company, Endurance American Specialty Insurance, Everest Indemnity Company, and Starr Surplus Lines Insurance Company in Florida state court (Palm Beach County) for declaratory relief and breach of contract. The “all risk” policies allegedly provide time element, civil authority, ingress/egress, contingent time element, contingent property damage, protection and preservation of property, decontamination cost, expediting costs and extra expense, rental and leasehold, and tenant relocation coverage. Complaint at ¶ 33. The Complaint alleges that the plaintiff suffered loss “due to the adherence of the SARS-CoV-2 virus to physical property and resulting adverse physical alteration of the property, requiring either remediation or disposal and replacement.” Id. at ¶ 77.

Madison Square Garden Sports Corporation and several affiliated entities, including the New York Knicks, LLC, sued Factory Mutual Insurance Company, AIG Specialty Insurance Company, Allianz Global Corporate and Specialty SE, and Assicurazioni Generali SPA in New York state court (New York County) for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgment. The “all risk” policies allegedly provide civil authority, ingress or egress, extra expense, and time element coverage and do not include a virus exclusion. Complaint ¶¶ 4, 78, 98. They do, however, contain a contamination exclusion. Id. ¶ 107. After notifying the insurers of the losses, they effectively denied coverage or reserved their rights to provide coverage. Id. ¶¶ 144–45, 147.

The producers of the Broadway show Harry Potter and the Cursed Child sued Certain Underwriters at Lloyd’s in New York state court (New York County) for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgment. The plaintiffs bought contingency cancellation policies that include a communicable disease exclusion. Complaint ¶¶ 16, 31. Because of the New York and California closure orders, the plaintiffs cancelled show performances. Id. ¶ 49. The insurer allegedly denied coverage for the claim because the plaintiffs had “not demonstrated a loss covered under any of the Insured Perils of the Policies.” Id. ¶ 52.

The NAIAS, L.L.C. sued Houston Casualty Company in the district court for the Eastern District of Michigan for declaratory judgment, breach of contract, and bad faith. The plaintiff alleges the insurer breached its duty under an event cancellation policy for the cancellation of the 2020 North American International Auto Show in Detroit. Complaint ¶ 3. The insurer made partial payments, but according to the plaintiff, it still owes $2.4 million in coverage, a “willful failure to fully and completely resolve this claim.” Id. ¶¶ 16 – 21.

Rowan University sued Factory Mutual Insurance Company in the federal district court for the District of New Jersey, asserting breach of contract. The plaintiff’s “all risk” policy allegedly provides coverage for business income losses and extra expenses, time element, civil authority, ingress/egress, attraction property, interruption by communicable disease, decontamination costs, communicable disease response, protection and preservation of property, and claims preparation costs. Complaint ¶¶ 6–7, 62. The plaintiff asserts there is no pandemic exclusion in the policy, but there is a contamination exclusion, which defines “contamination” as “virus.” Id. ¶¶ 8, 98. Rowan asserts that in New Jersey, the “[l]oss of use of property because of the imminent and substantial endangerment to people and property from a disease-causing agent is recognized in New Jersey as physical loss or damage.” Id. ¶ 65.

A New Orleans restaurant and catering company sued Assurant and/or Assurant Insurance Agency, Inc. in the federal district court for the Eastern District of Louisiana for declaratory and injunctive relief and breach of contract. The plaintiff allegedly bought an “all-risk” commercial property insurance policy, yet the insurer has denied the claim. Complaint ¶¶ 5, 18. Coverage allegedly contained in the policy includes business income, extra expense, and civil authority. Id. ¶ 17.

A travel agency sued State Farm Fire and Casualty Company for breach of contract and declaratory and injunctive relief in the federal district court for the Western District of Louisiana. The plaintiff allegedly bought an “all-risk” policy that included coverage for loss of income, extra expense, and civil authority. Complaint ¶¶ 5, 11. Even so, the insurer purportedly denied the claim. Id. ¶ 12.

A plastic surgeon sued State Farm Fire and Casualty Company for breach of contract and declaratory and injunctive relief in the federal district court for the Western District of Louisiana. The plaintiff allegedly purchased an “all-risk” policy that included coverage for loss of income, extra expense, and civil authority. Complaint ¶¶ 5, 11. Yet the insurer allegedly denied the plaintiff’s claim. Id. ¶ 12.

A chiropractic office sued State Farm Fire and Casualty Company for breach of contract and declaratory and injunctive relief in the federal district court for the Western District of Louisiana. The plaintiff allegedly purchased an “all-risk” commercial property insurance policy that included loss of income, extra expense, and civil authority coverage. Complaint ¶¶ 5, 11. That said, the insurer allegedly refused to cover the plaintiff’s claim. Id. ¶ 12.

A gaming and entertainment company sued Factory Mutual Insurance Company in Nevada state court (Clark County) for declaratory judgment, breach of contract, violations of the Nevada Unfair Claims Practices Act, and tortious breach of the covenant of good faith and fair dealing. The plaintiff claims to have purchased an “all risk” policy with coverage for direct property loss or damage, time element, civil authority, ingress or egress, contingent time element losses, response costs and interruption or time element losses due to onsite communicable disease, expediting costs and extra expenses, logistics extra costs, and claims preparation costs. Complaint ¶ 48. The insurer has refused to provide coverage for the losses. Id. ¶ 31.

Cincinnati Insurance Company Files Business Interruption Declaratory Action

Cincinnati Insurance Company sued the owners and operators of a gym in federal court (W.D. Tex.) for declaratory judgment. Defendant’s policy allegedly provided business income, extra expense, civil authority, and ingress and egress coverage. Complaint at ¶¶ 17–24. Cincinnati Insurance seeks a declaration that the defendant’s losses from COVID-19 related state business closure orders are not covered by defendant’s policy. Id. at ¶¶ 11, 26. Specifically, Cincinnati argues that Defendant did not suffer a direct physical loss and that other prerequisites for coverage were similarly not met. Id. at ¶¶ 25–30.