Insights

On April 24, the Department of Transportation announced the Trump Administration’s new framework for the regulation of Automated Vehicles (“AVs"). According to the release, “NHTSA’s AV Framework” has three principles:

On January 10, NHTSA published a Supplemental Notice of Proposed Rulemaking (SNPRM) detailing its plan to update 49 C.F.R. Part 577, the regulations covering required recall notifications. This proposal stems from the Fixing America's Surface Transportation (FAST) Act’s mandate that NHTSA amend its regulations to require recall notifications be sent to vehicle and equipment owners and purchasers by electronic means, in addition to first-class mail. The SNPRM supplements a 2016 proposed rule, such that anticipated changes may have fallen off many manufacturers’ radars.

On Tuesday, July 11, the Michigan Supreme Court issued a decision that could have profound impacts on the purchase and supply of automotive and other manufactured component parts under contracts governed by Michigan law. In MSSC, Inc. v. Airboss Flexible Products Co., Michigan’s high court found an automotive Tier 1 supplier’s purchase order contract unenforceable to compel future production from its supplier because the purchase order did not specify a quantity of parts to be supplied. In doing so, the Court formally titled a previously unnamed variation on a supply contract—the “release-by-release contract.”

On September 28, 2022, the Food and Drug Administration (FDA) issued Clinical Decision Support Software final guidance. The guidance clarifies the agency’s scope of oversight and regulation of clinical decision support software based on the definition of a device in the Federal Food, Drug, and Cosmetic Act (FD&C Act). It also describes the criteria used to assess whether software functions do not meet the definition of a device.

On March 11, 2021, the Nevada Supreme Court held an insurer that advances defense costs under a reservation of the right to recover them if a court later finds there was no duty to defend, is entitled to recoup those costs from its policyholder, and rejected the counter-position taken by the Restatement of the Law, Liability Insurance. Nautilus Ins. Co. v. Access Med., LLC, No. 79130, 2021 WL 936076 (Nev. Mar. 11, 2021).

On February 8, 2021, the district court for the Central District of California granted Continental Casualty Company’s motion to dismiss with prejudice a dental appliance manufacturer’s COVID-19 business interruption claims. First, the court held that the plaintiff did not state a claim for coverage under the policy’s civil authority endorsement because the civil authority orders cited in the complaint did not prohibit access to the plaintiff’s place of business or cause any direct physical loss of or damage to its property. Order at 8-10. Second, the court held that the plaintiff did not state a claim for coverage under the policy’s business income and extra expense conditions for the same reasons. Id. at 10. Lastly, the court dismissed the plaintiff’s unfair competition and punitive damages claims, because the plaintiff had not otherwise pled a violation of a statute or common law. Id. at 11.

On February 4, 2021, the federal district court for the Eastern District of Michigan granted in part and denied in part West Bend Mutual Insurance Company’s motion to dismiss a hair salon’s COVID-19 business interruption claim. While the court found that the plaintiff’s allegation that it has been unable to use its property for its intended purpose due to COVID-19 particles infecting the property and exposing staff and patrons was sufficient to survive a motion to dismiss “when the Policy states that it will cover ‘direct physical loss or damage’ that does not define ‘loss’ or ‘damage’ to exclude loss of use,” Order at 5, the court nonetheless concluded that business income, extra expense, and civil authority coverage was barred by the policy’s virus and consequential loss exclusions. Id. at 7-8. The plaintiff’s additional claim for communicable diseases coverage survived the motion to dismiss.

On January 28, 2021, the district court for the Eastern District of Pennsylvania granted Selective Insurance Company of the Southeast’s motion to dismiss a putative class action’s COVID-19 business interruption claim. The court held that “the mere inability to access the property” did not constitute “direct physical loss of or damage to property.” Order at 8, 11. That the plaintiff “could immediately resume business, without a period of restoration” proved the property suffered no damage and the loss was purely economic. Id. at 11. The court concluded there was also no coverage under the civil authority provision because the closure orders were meant to prevent the spread of COVID-19 rather than because of physical damage to neighboring property. Id. at 13. Finally, the virus exclusion barred the claim, even if the plaintiff had adequately pled a claim for coverage under the policy. Id. at 15.

On January 19, 2021, the district court for the District of New Jersey granted with prejudice Arch Insurance Company’s motion to dismiss two minor league baseball team owners’ COVID-19 business interruption claims. Finding that the stay-at-home orders were not enough for plaintiffs to allege facts showing their properties suffered physical damage, the court held the policies did not cover their losses. Order at 3–4. Additionally, the policies “clearly and explicitly” excluded coverage for loss arising from viruses, and the stay-at-home orders were “tied inextricably” to the coronavirus. Id. at 4.

On January 15, 2021, the federal district court for the Western District of Pennsylvania granted National Fire & Marine Insurance Company’s motion to dismiss a restaurant’s proposed class action complaint for losses from the coronavirus. Writing that “[f]our words are critical to the determination of this issue: ‘direct,’ ‘physical,’ ‘loss’ and ‘damage,’ the court found that “[t]here is no reasonable question that the Policy language presupposes that the request for coverage stems from an actual impact to the property’s structure, rather than the diminution of its economic value.” Order at 9, 11. Given the restaurant’s ability to remain open for takeout, the court held it did not sustain a “direct” or “physical” loss to its property under the dictionary definition of those words and to determine otherwise “would stretch the language beyond the plain meaning of its terms and beyond the interpretive authority of the Court.” Id. at 11. Although the governor’s orders closed or restricted indoor dining, the civil authority provision also did not trigger coverage because the restaurant remained partially open. Id. at 14. “[R]eduction to partial access does not suffice to trigger business income coverage.” Id. The court did not reach whether the virus exclusion applied.

On January 7, 2021, the district court for the Northern District of Illinois granted Charter Oak Fire Insurance Company’s motion to dismiss a restaurant’s proposed class action complaint. The court held that the virus exclusion was “unambiguous,” “dispositive,” and required the complaint’s dismissal “because there is simply no doubt as to [its] meaning.” Order at 5–6. With language so “clear, sweeping, and all-encompassing,” the court found the plaintiff’s ambiguity arguments unavailing. Id. at 6–7. It dismissed the case with prejudice. Id. at 8.

On December 23, 2020, the Supreme Court of California, en banc, denied the plaintiff’s petition to transfer to the Supreme Court a COVID-19 business interruption appeal filed against California Mutual Insurance Company, now pending in the California Court of Appeals.

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 December 17, 2020, the district court for the Middle District of Florida granted DTW 1991 Underwriting Limited’s motion to dismiss a bar’s COVID-19 business interruption complaint. According to the court, because the plaintiff did not suffer any tangible damage, and instead alleged that its loss was tied to the government shutdown orders, the loss was only economic, which “is not the type of loss that [the] Defendant undertook to pay for based on the plain meaning of the language in the policy.” Order at 15. Finding amendment would be futile, the court dismissed the case with prejudice. Id. at 17.

On December 11, 2020, the federal district court for the Southern District of New York granted Admiral Indemnity Company’s motion to dismiss a restaurant’s class action complaint for losses resulting from COVID-19 closure orders. The court found that the meaning of the phrase “direct physical loss of or damage to” in the policy “connotes a negative alteration in the tangible condition of the property” and held that the loss of ability to use otherwise unaltered or existing property “cannot be classified as a form of ‘direct physical loss’ or ‘damage.’” Order at 11-12. The court further held that the policy’s civil authority coverage was not triggered when the complaint failed to plead that the surrounding area suffered damage or that the closure order completely barred access to the insured property but, instead, limited the insured to take-out and delivery services. Id. at 25-26.

On December 3, 2020, the federal district court for the District of Kansas granted The Cincinnati Insurance Company’s motion to dismiss a headwear wholesale distributor’s COVID-19 property loss claims and dismissed the claims with prejudice. According to the Court, mere diminution in value or impairment of use alone “unambiguously” do not constitute “direct loss.” Order at 14. The Court found that the plaintiff “wholly ignore[d] the modifiers ‘direct’ and ‘physical’ that precede both ‘loss’ and ‘damage’” and that case law supported requiring actual, tangible damage to or intrusion on the insured property. Id. at 9–11, 13. As the stay at home orders “certainly” do not constitute a physical intrusion, and the plaintiff only speculated whether the virus contaminated the property, the claims did not survive a motion to dismiss. Id. at 14, 17. Even if the virus had physical attached to the property, it did not qualify as direct, physical loss because it can be eliminated. Id. at 18. Additionally, the civil authority provision did not apply because there was no allegation of damage to the surrounding property or that the stay at home orders formally prevented the plaintiff from accessing the property. Id. at 19–20. An “indirect effect” of restriction or access is “insufficient.” Id. at 20.

On November 30, 2020, the U.S. District Court for the Southern District of Iowa granted Illinois Casualty Company’s motion for judgment on the pleadings in a COVID-19 business interruption claim filed by restaurants and bars. Finding the policy’s requirement that an insured suffer “direct physical loss of or damage” to property unambiguous, the court found that the phrase “requires a physical invasion” and that “loss of use is insufficient to trigger coverage without physical damage to the insured properties.” Order at 15. Because the plaintiffs pleaded a loss of use, the court concluded that they failed to allege facts sufficient to trigger business income or extra expense coverage. Id. The court also determined that the plaintiffs failed to plead facts that could qualify for coverage under the policy’s Civil Authority provision, which “unambiguously requires that an order of civil authority be issued in response to a dangerous physical condition created by damage to another property,” id. at 18, and that the policy’s virus exclusion applied, because the alleged losses were “directly or indirectly caused by or resulted from COVID-19, rather than strictly the [closure order].” Id at 20.

The appellate argument has concluded in the U.K. Supreme Court of the decision by the U.K. High Court regarding coverage for COVID-19-related losses under several policies that provided non-physical damage Business Interruption extension cover. The appeal considers the impact of U.K. governmental actions and measures on 28 clauses in the 21 lead policies written by the Appellant Insurers. The FCA and the Appellant Insurers agreed to submit those policy wordings for consideration with the aim of addressing issues arising from similar policies prevalent in the insurance industry. The case was heard in July 2020 and resulted in a finding that many of the policies responded to COVID-19 business interruption.

On November 9, 2020, the U.S. District Court for the Northern District of California, applying Hawaii law, granted Fireman Fund Insurance Company’s motion to dismiss the business interruption claim brought by the owner of twelve retail stores. The court held that “the mere threat of coronavirus cannot cause a ‘direct physical loss damage to’ covered property as required” by the policy, thus “follow[ing] the overwhelming majority of courts” that have addressed the same issue. Finding no loss or damage, the court concluded that the plaintiff failed to plead that business income or civil authority coverage existed. Because the underlying breach of contract claim failed, the court also dismissed the plaintiff’s claims for unfair or deceptive trade practices, breach of the covenant of good faith and fair dealing, and declaratory relief.

On November 2, 2020, the U.S. District Court for the Southern District of Florida granted Hartford Casualty Insurance Company’s motion to dismiss a dental practice’s COVID-19 business interruption claim. The court concluded that the complaint failed to allege coverage under the plain terms of the policy, stating that “there were no physical harms to the insured premises because Plaintiffs’ injuries are purely economic,” Order at 11, and that the policy’s virus exclusion barred coverage. Id. at 16-19.