BUSINESS INTERRUPTION – CORONAVIRUS (COVID-19)
Numerous federal and state courts continue to issue rulings on claims under first-party policies for business interruption coverage related to the COVID-19 pandemic. As our summaries of selected decisions indicate, the results in these cases have heavily favored insurers.
Insured’s temporary inability to use property due to COVID-19 order did not constitute direct physical loss; Court denies insured’s request to certify to the Alabama Supreme Court; Finds that a reasonable insured would not understand the policy’s “direct physical loss of property” language to cover purely economic losses resulting from the state order.
Insured’s complaint dismissed based on exclusion that “unambiguously bars coverage for ‘loss or damage caused directly or indirectly…’ by ‘any virus, bacterium, or other microorganism’”; Virus exclusion applies to civil authority coverage; Insured had no reasonable expectation of coverage; Regulatory estoppel, “a doctrine foreign courts have used to preclude insurers from taking a position contrary to one allegedly presented to a regulatory agency,” does not apply because, among other things, insured’s complaint was “devoid of specific allegations of any action or representation made by” the insurer and ISO circular offered by insured “is clear that the Virus Exclusion is meant to exclude losses caused by pandemics.”
Virus exclusion precludes coverage for claims based on COVID-19 government closure orders (in California, Idaho, Indiana, Maryland, Oregon, South Carolina, Tennessee, Texas, Virginia and West Virginia); Court rejects insureds’ regulatory estoppel defense as a matter of law because it has not been adopted in any of the relevant jurisdictions.
Insurer’s motion to dismiss granted; State executive order did not create “direct physical loss of” the insured’s property and holding otherwise “would massively expand the scope of the insurance coverage at issue”; Court refuses insured’s request to certify to the Georgia Supreme Court. The insured filed a Notice of Appeal on November 4, 2020.
Virus exclusion precludes civil authority coverage based on government shut-down orders: “The policy contemplated that a government entity might take some action in response to a virus, and specifically excluded coverage in that scenario.”
Insured’s income loss claims under policy providing coverage for “direct ‘loss’ to Covered Property” dismissed; Agrees with other courts that have found “loss of use of property without any physical change to that property cannot constitute direct physical loss or damage to the property.”
Insureds failed to state claims for business interruption and civil authority coverage; “Although [insureds] attempt to paint their losses as physical, they have essentially pleaded loss of use, which is insufficient to establish a direct physical loss”; Rejects insureds’ reasonable expectations argument based on virus exclusion which barred coverage.
Insureds’ complaint dismissed for largely the same reasons as Palmer Holdings; Finds virus exclusion barred coverage and rejects insureds’ regulatory estoppel theory.
Insurer’s motion to dismiss granted because insured failed to demonstrate direct physical loss from COVID-19 and stay-at-home orders; “the overwhelming majority of cases to consider business income claims stemming from COVID-19…hold that ‘direct physical loss or damage’ to property requires some showing of actual or tangible harm to or intrusion on the property itself.”
Insurer motion for summary judgment denied; Court notes questions of material fact, including whether: (1) policy interests “necessitate a more liberal reading of ‘direct physical loss or damage’” in keeping with Chinese Drywall cases; (2) COVID-19 constitutes a physical loss or damage and if so how it “impacts the environment”; and (3) government orders (that “cited damage to property in the city and state”) prohibited access to insured premises and were taken in response to dangerous physical conditions.
Insurer’s motion to dismiss granted; Insured failed to “plausibly allege any direct physical loss or damage to [its] properties, or plausibly demonstrate that the virus or bacteria exclusion would not preclude coverage” for business income losses due to COVID-19 closure orders. The insured filed an amended complaint on November 10, 2020.
Insured’s complaint fails to state a claim because it does not allege that any insured property was damaged or that insured was permanently dispossessed of any such property; Virus exclusion “clearly and unequivocally exempts ‘loss or damage caused by or resulting from any virus’” and precludes all coverage.
Insured’s complaint dismissed; Court disagrees with insured that mere loss of ability to access property constitutes physical loss; Further holds that policy’s “pollution and contamination” exclusion, “by its plain terms,” barred coverage.
Insured’s complaint failed to allege facts that plausibly demonstrate “direct physical loss of or damage to” insured premises; Notes that “the weight of authority demonstrates that stay at home orders and the existence of COVID-19, alone, does not qualify as ‘direct physical loss of or damage to’ property.”
Insurer’s motion to dismiss denied without prejudice; Court finds that the complaint, which claims among other things losses due to the presence of COVID-19 “at or near” the insured’s premises and a state closure order, “sufficiently alleges losses stemming from the direct physical loss and/or damage to property” to trigger obligations under the Policy’s property and time element coverage provisions; States that the insurer has not shown it “unreasonable” to interpret a “Pollution and Contamination Exclusion” (which “contains the word ‘virus’”) to apply only to “traditional environmental and industrial pollution and contamination.”
Insured’s claims barred by virus exclusion; Declines to find civil authority coverage, noting that the insured had not alleged facts establishing any nexus between damage to nearby property and state emergency orders, yet does not reach a conclusion as to the issue of whether a physical loss had occurred since the virus exclusion applies; Finds no basis to apply regulatory estoppel.
Virus exclusion with anti-concurrent causation language bars coverage for insured’s business income losses due to state COVID-19 closure orders; Court refers to the “wealth of well-reasoned opinions from other districts holding similarly.”
Virus exclusion bars coverage for insured’s business income and extra expense losses: “Since the virus is alleged to be the cause of the governmental action, and the governmental action is asserted to be the cause of the loss, plaintiff cannot avoid the clear and unmistakable conclusion that the coronavirus was the cause of the alleged damage or loss.’” The insured filed a Notice of Appeal on November 13, 2020.
Insurers’ motions for judgment on the pleadings granted; “Claims for damages incurred due to COVID-19 are unambiguously excluded from coverage under the virus exclusion provisions in the applicable policies.”
Partial summary judgment granted in favor of insureds; Court rules there was “direct physical loss” since the insureds were “expressly forbidden by government decree from accessing or putting their property to use for the income-generating purposes for which the property was insured.” The insured filed a Notice of Appeal on November 6, 2020.
Insurer’s motion to dismiss denied; Court finds in part that at the pleadings stage allegations by the insured (“which must be taken as true”) of the presence of COVID-19 on its premises and resulting direct physical loss and damage were sufficient to survive dismissal.
Insurer’s motion to dismiss denied; “The Court cannot find beyond doubt that there is no set of facts that Plaintiffs can prove that would entitle them to recovery.”
Insurer’s motion to dismiss granted; Insured did not allege “direct physical loss,” which “unambiguously requires a showing of tangible damage”; Virus exclusion bars coverage even if there was direct physical loss; Court disregards insured’s conclusory allegations that Virus Endorsement lacks consideration.
Insurer’s motion to dismiss granted; Court refuses to apply regulatory estoppel to prevent application of virus exclusion, which barred coverage, as insured dental practice failed to satisfy the necessary elements; Finds that insured failed to plead facts that COVID-19 caused physical damage to trigger business income coverage and no civil authority prohibited access to the practice which was able to stay open for emergency procedures.
Insurer’s motion to dismiss granted; Insureds’ loss of business income as a result of COVID-19 and Governor’s Orders was not “direct physical loss;” Court finds no physical component to the loss (“no allegations that any physical conditions of or on the covered premises have been altered in a way that has resulted in or affected Plaintiffs’ loss”) and the insureds “maintain the ability to operate at their premises, albeit on a limited basis.”
Insured’s complaint dismissed; Virus Exclusion unambiguously bars coverage for insured’s failure to collect income and payment of operating expenses during government-ordered closure; Finds that, in any event, insured could not show COVID-19 or shut-down orders caused physical damage or reparable loss.
Insured dental practice failed to plausibly allege that COVID-19 caused physical damage or loss where office was open for emergency procedures and “remained inhabitable and usable, albeit in limited ways;” Virus exclusion “unambiguously” bars coverage; Court finds regulatory estoppel inapplicable because insurer’s position was consistent with ISO and AAIS statements, which “made clear that property policies have not been and were not intended to be a source of recovery for damage from disease-causing agents such as a virus.”
Preliminary objections to insured’s complaint overruled; Court finds resolution of factual determinations would be premature at this “very early stage” and notes the “law and facts are rapidly evolving in the area of COVID-19 related business losses.”
Virus exclusion with anti-concurrent causation provision precludes coverage for insured’s business interruption claim. The insured filed a Notice of Appeal on October 19, 2020.
Insurer’s motion to dismiss granted; Court finds that “‘physical loss’ is not ambiguous” and that the scope is “far narrower than [the insured] contends and is only reasonably read in context as meaning ‘a distinct, demonstrable, physical alteration of the property’”; Civil authority coverage was not triggered by government “stay-at-home” orders which were issued to “mitigate possible harms from an ongoing pandemic” and were “not a response to actual damage to adjacent property”; Virus exclusion barred coverage.
Insured found to have alleged a “plausible claim” for relief under Virus Endorsement, which granted limited coverage for business interruption if “‘loss or damage to property caused by … virus’ causes a suspension of operations and if ‘Time Element Coverage applies’”; Virus exclusion otherwise precludes coverage; Court finds no basis in Texas law for applying regulatory estoppel.
“[U]nambiguous” virus exclusion is “plainly applicable” and bars coverage; Insured’s breach of contract, “bad faith” and civil conspiracy claims are dismissed.
Insurer’s motion to dismiss denied; Court considers “direct physical loss of” and “damage to” to be “alternative means for coverage” and finds the phrase “physical loss of” ambiguous (“fairly susceptible to two reasonable interpretations”); Concludes that the insurer has not shown “beyond doubt” that the insured can prove no set of facts consistent with the complaint that would justify recovery.
Insurer’s motion to dismiss is granted because the “unambiguous terms of the Policy do not provide coverage for solely economic losses unaccompanied by physical property damage;” Court finds decisions concluding that COVID-19 does not cause direct physical damage or loss to property “more persuasive,” and states that “even when present, COVID-19 does not threaten the inanimate structures covered by property insurance policies, and its presence on surfaces can be eliminated with disinfectant.” The insured filed a motion to amend judgment or to certify on December 2, 2020.
Nebraska Supreme Court holds that a “contamination” exclusion* in a rental property insurance policy bars coverage for the costs of remediating methamphetamine vapor and residue. Although the policy did not define terms like “contamination,” the court found the exclusion unambiguous because the words were “readily defined in standard dictionaries” and the landlord-insured failed to show they were reasonably susceptible to conflicting meanings. The insured also failed to show the damage fell within “sudden and accidental” exceptions to policy exclusions for property loss caused by “vandalism” or “act[s] of a tenant.” Citing Dutton-Lainson Co. v. Continental Ins. Co., 716 N.W.2d 87 (Neb. 2006) (term “sudden” in pollution exclusion refers to a “temporally abrupt release of pollutants into the environment”), the court concluded that the loss resulted from tenantssmoking or producing meth at the property for up to a year and, thus, was not “sudden.”
Audio of the argument is available here.
* The “contamination” exclusion provides, in part, that coverage is precluded for property loss caused by or consisting of: (1) “vapors, fumes, acids, toxic chemicals, toxic gasses, toxic liquids, toxic solids, waste materials, [i]rritants, contaminants, or pollutants”; or (2) “[s]mog” or “[c]ontamination, including, but not limited to, the presence of toxic, noxious, or hazardous gasses, chemicals, liquids, solids or other substances at the residence premises…”
North Carolina federal court finds that a CGL policy’s “hazardous materials” exclusion* does not preclude a duty to defend against underlying claims alleging injurious exposure to per- and polyfluoroalkyl substances (PFAs) in an insured’s fire suppressant products. Citing West American Ins. Co. v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. App. 1991) (which construed a pollution exclusion to apply only where there is a “discharge, dispersal, release, or escape” of a pollutant “into the environment”), the court conluded that the “hazardous materials” exclusion applied only to “traditional environmental pollution” because it contained similar “terms of art.” Since the underlying complaints alleged injury from environmental and direct exposure to the insured’s products, the exclusion was found not to apply on the duty to defend. The insurer filed a Notice of Appeal on November 6, 2020.
* The exclusion applies to bodily injury or property damage that “would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘hazardous materials’ at any time.” The policy defines “hazardous materials” to include “‘pollutants’ … and materials containing them.”
Pennsylvania Commonwealth Court holds that a PRP notice from the state’s Department of Environmental Protection triggered a CGL insurer’s duty to defend. According to the decision, a PRP notice is the equivalent of a “suit” within the meaning of the policy since, like a civil complaint, a PRP notice “commences a legal process to determine, subject only to review for abuse of discretion, the appropriate response action that a PRP must perform or fund to abate the pollution at a site.” The court also adopted a presumption that RI costs are defense unless the insurer shows the insured would derive an unjust benefit from such an allocation; and that FS costs are indemnity unless the insured, “or any party disadvantaged by the presumption,” shows the insurer would derive an unjust benefit from such an allocation.
TRIGGER OF COVERAGE
New York appellate court declines to adopt a presumption that, under the state’s “injury-in-fact trigger of coverage,” asbestos-related injury occurs from first exposure through death or filing of suit. The court explained that whether injury has occurred in a particular period must be determined from the factual record. It also held: (1) based on the terms of the excess policies at issue (which included non-cumulation and prior insurance provisions), an “all sums” allocation and vertical exhaustion applied under Viking Pump [52 N.E.3d 1144 (N.Y. 2016)]; (2) the non-cumulation clauses entitled the insurer to a reduction of its limits for amounts of “loss,” if any, actually paid on a particular claim under prior excess coverage; and (3) the excess insurer had no obligation to pay or reimburse defense costs incurred without its consent.