BUSINESS INTERRUPTION – CORONAVIRUS (COVID-19)
Gavrilides Management Company v. Michigan Insurance Company, No. 20-000258-CB (Mich. Cir. Ct., Ingham Cnty. July 1, 2020)
Michigan trial court, in a case of first impression, finds no business interruption coverage is owed under a first-party policy for insured-restaurants closed by government order related to COVID-19. The court explained that, under the policy language, among other things, the suspension of the insured’s operations “must be caused by direct physical loss of or damage to property,” and that direct physical loss must involve “something with material existence, something that is tangible, something…that alters the physical integrity of the property.” Since the insured’s complaint did not allege that its business had been physically damaged or that COVID-19 was ever on its properties, the court found no coverage for the claimed business income loss. It further rejected, as “simply nonsense,” the insured’s argument that the physical-alteration requirement was met because it was impossible for customers to physically eat in the restaurant. The court held that, even if there were direct physical loss or damage, the policy’s virus exclusion barred coverage for damages related to COVID-19.
Video of the Zoom hearing including the court’s ruling is available here.
Further discussion of the ruling by Anthony L. Miscioscia is available here.
Note: In another COVID-19 business interruption coverage case, Social Life Magazine, Inc. v. Sentinel Insurance Company Limited, No. 20 Civ. 3311 (S.D.N.Y. May 14, 2020), a New York federal district court denied a magazine publisher-insured’s motion for a preliminary injunction seeking to force its insurer to cover revenues allegedly lost as a result of ceasing operations in response to a government order related to COVID-19. The court’s oral ruling noted that “New York law is clear that this kind of business interruption needs some damage to the property to prohibit you from going. You get an A for effort, you get a gold star for creativity, but this is just not what’s covered under these insurance policies.” The insured appealed to the Second Circuit, but the case has since been voluntarily discontinued without prejudice.
EXPERTS – ALLOCATION
Illinois appeals court holds that a manufacturer-insured seeking excess coverage for asbestos losses failed to prove underlying exhaustion and that the per-occurrence limits of a multi-year umbrella policy applied to each annual policy period. It determined that the trial court’s rejection of opinions offered by the insured’s allocation expert was not against the manifest weight of the evidence and the insured was not entitled to a new trial on exhaustion. Among other things, the trial court found the expert’s use of statistical sampling to make “trigger” determinations was suspect because he reviewed documents relating to only 8 of the 74 underlying claims at issue. The appeals court commented that, although statistical analysis may be used in allocating asbestos claims, “a case-by-case analysis for asbestos claims, if feasible, is preferable because it results in a more accurate determination of a trigger date.” It also declined to second-guess the trial court’s finding regarding the expert’s use of a “banking” approach, in which he “chose to reserve, or bank, a portion of or the full claim payment until the primary policies and earlier umbrella policies were exhausted.” The trial court found more credible the opinion of the insurer’s expert that this did not “comport with the standards in the insurance allocation field.” With regard to the applicable limits of the multi-year policy, the appeals court concluded that the per-occurrence limits applied in each year because the policy made “no distinction” between per-occurrence and aggregate limits.*
* The policy states that the policy period is comprised of three consecutive periods and “[t]he limits of the company’s liability shall apply separately to each such consecutive period.”
OCCURRENCE
Eighth Circuit holds that, under Missouri law, damages that are the “normal, expected consequence” of an insured’s allegedly defective construction work are foreseeable or expected as a matter of law, and thus the work is not an “accident”/“occurrence” under a CGL policy.* Among other things, the court considered whether foreseeability should be determined subjectively, from the actual insured’s viewpoint, or objectively, from a reasonable insured’s perspective. It predicted that the Missouri Supreme Court would find that foreseeability could be inferred as a matter of law based on the nature or character of the insured’s act and the type of damages at issue, even if a subjective standard would ordinarily apply. The Eighth Circuit concluded that, since the damages sought flowed directly from the “multitude of design and construction issues” with the insured’s work, they were foreseeable as a matter of law and did not allege a covered “occurrence” under the policy.
* The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The court explained that (1) “Missouri gives the term ‘accident’ in a CGL its ‘common meaning’; namely, ‘an event that takes place without one’s foresight or expectation; an undesigned, sudden and unexpected event;’” and (2) “[a]n ‘accident’ does not include acts that result in ‘expected or foreseeable damage.’”
T.H.E. Insurance Company v. Glen, 2020 Iowa Sup. LEXIS 64 (Iowa June 5, 2020)
Iowa Supreme Court holds that a claim of gross negligence (under Iowa Code § 85.20) on the part of an amusement park-insured’s employee, leading to the death of a co-employee, may constitute an “accident” (and, therefore, an “occurrence”) under the insured’s CGL and excess policies.* According to the court, (1) under Iowa law, an accident is “an unexpected and unintended ‘occurrence’ so long as the insured does not expect or intend both it and some injury;” (2) this definition is consistent with the “Expected Or Intended Injury” exclusion in CGL policies, with the term “expected” denoting that the actor knew or should have known there was a “substantial probability” (an “elastic term” meaning “highly likely” or “substantially certain” in the context of an insurance exclusion) certain consequences would result from his or her actions; (3) a finding of “gross negligence” in Iowa requires proof of, among other elements, “knowledge that injury is a probable, as opposed to a possible, result of the danger;” and (4) under § 85.20, gross negligence must “amount to wanton neglect for the safety of another.”** It therefore concluded that “some, but not all, acts of gross negligence may not be accidents,” and “[i]t is possible for a plaintiff to thread the needle by convincing a factfinder that acts or omissions of a co-employee gave rise to an expectation that an injury was more likely than not to occur, and thus amounts to gross negligence, but was not ‘highly likely’ and therefore outside of coverage for accidents.”
Video of the argument is available here.
* The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.”
** The court explained that, under Iowa law, “[w]antonness is said to be less blameworthy than an intentional wrong only in that instead of affirmatively wishing to injure another, the actor is merely willing to do so.”
Michigan Supreme Court holds that a post-1986 CGL policy may provide coverage for a claim by a construction manager for the cost of repairs to correct a subcontractor’s faulty work on a medical center project. Both the construction manager and the medical center were additional named insureds on the subcontractor’s policy. The court concluded that unintentionally faulty subcontractor work that damages an insured’s work product may constitute an “accident” (and, therefore, an “occurrence”)* under the 1986 policy language at issue, and noted that it expanded coverage to include some previously excluded business risks, specifically damages arising out of a subcontractor’s faulty workmanship, regardless of whose property was damaged. According to the court, “[i]f faulty workmanship by a subcontractor could never constitute an ‘accident’ and therefore never be an ‘occurrence’ triggering coverage in the first place, the subcontractor exception [to the Damage To Your Work exclusion] would be nugatory,” and “the plain meaning of the word ‘accident’ has a broader meaning than ‘fortuity.’”
Video of the argument is available here.
* The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Uneeda Rest, LLC v. Hexum, 2020 Wisc. App. LEXIS 264 (Wis. Ct. App. June 9, 2020)
Wisconsin appeals court concludes that intentional/volitional conduct of the insureds and/or their contractor (the “injury-causing event”) did not qualify as an “occurrence” under homeowner’s policies,* even if the resulting property damage may have been unexpected or unintended. In finding no coverage for damage to a neighboring property (including resulting water damage) caused by the insureds’ construction of a new home and related vehicle traffic over the property, the court noted that Wisconsin law focuses on whether “the injury-causing event,” not the injury itself, was accidental. It determined that the damage may have been unintended or unexpected, but the injury-causing event (here, construction of the home) was intentional, and therefore did not constitute an “accident” (i.e., an “occurrence”).** The court also rejected the insureds’ argument that allegations of negligence transformed the event into a covered claim, reasoning that “it is the evidentiary facts concerning the causes of the alleged damage that matter, not the theory of liability alleged,” and that “[m]erely inserting an allegation of negligence into a complaint that alleges only damages caused by intentional acts does not create an occurrence.”
* The policies define “occurrence” as “an accident, including repeated exposures to similar conditions, that results in ‘bodily injury’ or ‘property damage’ during the policy period.”
** The court distinguished prior Wisconsin cases finding that damage related to certain faulty workmanship or negligence could be an “occurrence,” and noted that the damage at issue was the result not of defective work but of “the intentional and volitional act” of building the new home according to an architect’s plans and specifications.
PUNITIVE DAMAGES – NEW MISSOURI LEGISLATION
Missouri enacts legislation (Mo. Rev. Stat. §§ 510.261-265) restricting the ability to seek and render a “punitive damage award.”* As signed into law on July 1, 2020, Missouri Senate Bill No. 65 provides, in part, that (1) “[e]xcept as otherwise provided by statute, punitive damages shall not be awarded unless the claimant proves by clear and convincing evidence that the defendant intentionally harmed the plaintiff without just cause or acted with a deliberate and flagrant disregard for the safety of others” (§ 510.261.1); and (2) “[p]unitive damages may only be recovered if the trier of fact awards more than nominal damages or if the claim or claims for which nominal damages are solely awarded invoke privacy rights, property rights, or rights protected by the Constitution of the United States or the Constitution of the state of Missouri” (§ 510.261.2). Among other things, the statute also: (1) limits vicarious liability for punitive damages (§ 510.261.3); (2) allows a party to assert a claim for a “punitive damage award” only after the initial pleading stage with leave of court upon a finding that, “based on the evidence to be admitted at trial a trier of fact could reasonably conclude, based on clear and convincing evidence, that the standards for a punitive damage award…have been met” (§ 510.261.5); and (3) permits a defendant to file a post-trial motion “requesting the amount awarded by the jury as punitive damages be credited by the court with amounts previously paid in any state or federal court by the defendant for punitive damages arising out of the same conduct on which the imposition of punitive damages is based” (§ 510.263.4).
The new law applies to cases filed on or after August 28, 2020.
* A “punitive damage award” is defined as “an award for punitive or exemplary damages or an award for aggravating circumstances” (§ 510.261.9).