COVID-19 Pandemic Coverage Claims Update: The Appellate Tribunals Are Still Overwhelmingly Ruling In Favor of Insurers.

By Melinda S. Kollross

Although some state intermediate appellate tribunals have issued rulings favorable to insureds, the Supreme Courts from Delaware, Maryland and Ohio have added their voice to other state high courts holding that there is no business interruption coverage for pandemic related economic losses. Additionally, the federal appellate tribunals continue to rule for insurers on these claims. 

State Appellate Tribunals

California

Amyʼs Kitchen Inc. v. Firemanʼs Fund Ins. Co., No. A163767 (Cal. App. 4th Dist. 10-4-22)

This decision turned upon a “communicable disease event” term in the policy. The policy defined this term as “an event in which a public health authority has ordered that a location be evacuated, decontaminated, or disinfected due to the outbreak of a communicable disease at such location.” Under that provision, according to the Court, the need to clean or disinfect infected or potentially infected covered property would constitute “direct physical loss or damage” of that property within the meaning of the policy. While the Court found that the insured had failed to allege a “communicable disease event” in its initial complaint, the Court nonetheless ruled that the insured should have been allowed leave to file an amended complaint to allege facts showing such an event that would trigger coverage under the policy. 

Grech Motors Inc. v. Travelers Property Casualty Co. of Am., No. E077303 (Cal. App. 4th Dist. 10-11-22)

In a published opinion, the Court found Musso & Frank Grill Co., Inc. v. Mitsui Sumitomo Ins. USA Inc., 77 Cal.App.5th 753 (5th Dist. 2022), controlling holding that the phrase “direct physical loss of or damage to property” requires some negative occurrence to befall the physical aspect of the property; the phrase does not encompass a temporary restriction on using property that is physically intact and still in the physical possession of the insured. 

Shusha Inc. v. Century-National Ins. Co., No. B313907 (Cal. App. 2nd Dist. 12-14-22)

The Court reversed the dismissal of the insured’s complaint for pandemic related economic losses holding that the insured’s allegations that its property became contaminated with COVID-19 was sufficient to satisfy the physical loss or damage requirements of the policy. According to the Court, the insured was not required to provide authority at the pleading stage to support its position that contamination with the COVID-19 virus caused damage to the surfaces of the premises.

The Court also rejected an argument made by amici for the insurer that allowing the complaint to proceed would destabilize insurance markets by upholding claims for losses due to any regulation that limits a business’s operations, such as a noise ordinance mandating early closure or a fire regulation reducing occupancy and requiring reconfiguration. The Court stated that these types of regulations would not involve allegations that an external force acted on the insured property causing a physical change in the condition of the property, as alleged by the insured in this case.

Delaware

APX Operating Co. v. HDI Global Ins. Co., No. 393, 2021 (Del. 10-5-22)

In a short 1-page order, the Delaware Supreme Court adopted the reasoning and decision of the trial court in dismissing the insured’s suit for coverage. The trial court had relied upon a contamination exclusion that defined contamination in part as including a virus, and the trial court ruled that the exclusion barred the entirety of the insured’s claim for pandemic related losses. 

Louisiana

Cajun Conti LLC v. Certain Underwriters at Lloyds London, No. 2021-CA-0343 (La. App. 8-8-22), review granted (La. 11-22-22)

We had reported on this 3-2 split insured decision in Volume 3 of our 2022 CM Report where the Louisiana Court of Appeals held that direct physical loss of or damage to property was ambiguous in the context of the presence of COVID-19 and construed coverage in favor of the insured. 

On November 22, 2022, the Louisiana Supreme Court granted discretionary review of the Court of Appeals split decision. We will monitor these proceedings and immediately report on the same once a decision is issued.

Maryland

Tapestry, Inc. v. Factory Mut. Ins. Co., Misc. No. 1 (Md. Sup. Ct. 12-15-22)

Maryland’s high court (now known as the Maryland Supreme Court) ruled in favor of the insurer regarding pandemic related economic losses. The case came to the Court from a question certified by a federal court in Maryland. The question as reformulated by the Court was:

“When a first-party, all-risk property insurance policy covers ‘all risks of physical loss or damage’ to insured property from any cause unless excluded, is coverage triggered when a toxic, noxious, or hazardous substance—such as Coronavirus or COVID-19—is physically present in the indoor air of that property; is also present on, adheres to, and can later be dislodged from physical items on the property; and causes a loss, either in whole or in part, of the functional use of the property?”

A unanimous Court answered this question in the negative, holding that there would be no coverage if COVID-19 caused neither tangible, concrete, and material harm to the insured property nor deprivation of the possession of the property. 

New York

Consolidated Restaurant Operations, Inc. v. Westport Ins. Corp., No. 450839/21 (N.Y. App. 4-7-22), review granted (N.Y. 11-17-22)

We had reported on this New York appellate decision in our summary contained in Volume 2 of our CM Report. The Appellate Division held, consistent with then prevailing New York law, that where a policy states that coverage is triggered only where there is “direct physical loss or damage” to the insured property, there must be actual, discernable, quantifiable change in the property. Here, there was no such change because of exposure to the virus, and thus the insured had no coverage. 

On November 17, 2022, the New York Court of Appeals granted discretionary review of the appellate division’s decision, and now we will get a definitive answer from New York’s highest court on whether pandemic related economic losses are covered under business interruption provisions found in property policies. We will monitor these proceedings and immediately report on the same once a decision is issued. 

Tina Turner Musical LLC v. Chubb Ins. Co. of Europe SE, No. 16804 (N.Y. App. Div. 1st Dep’t 12-6-22)

The Court ruled for the insured holding that losses resulting from the cancellation of its Broadway show during the COVID-19 pandemic did not fall within the communicable disease exclusion in the insurance policy because the exclusion did not clearly and unmistakably preclude from coverage losses caused by communicable diseases that were of such a systemic nature as to lead to quarantine or travel advisory orders by a national or international body or agency.

Ohio

Neuro-Communication Serv., Inc. v. Cincinnati Ins. Co., No. 2022-Ohio-4379 (12-12-22)

This case came to the Ohio Supreme Court on a question certified by an Ohio federal district court asking: “Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?” The Court agreed to hear the case and in a nearly unanimous opinion ruled for the insurer and against the insured.

The Court held that the definition of the term “loss” was clear and unambiguous. To obtain coverage, the insured had to show that there was loss or damage to covered property that was physical in nature. Such loss or damage did not include a loss of the ability to use insured property for business purposes. Accordingly, the Court answered the certified question by ruling that direct physical loss or damage to property did not arise from (1) the general presence of Covid in the community, (2) the presence of Covid on surfaces at a premises, or (3) the presence on a premises of a person infected with Covid. The Court found that its decision was consistent with the “clear trend” of federal and state appellate decisions holding that mere loss of use of a premises does not constitute a direct physical loss.

Only one Ohio Supreme Court Justice dissented, and then only on the limited ground that the Court shouldn’t have agreed to answer the certified question stating that Ohio law was clear on the point. 

Eye Specialists of Delaware v. Harleysville Worchester Ins. Co., No. 21AP-90 (Ohio App. 12-15-22)

The Court ruled for the insurer based on a virus exclusion holding that the language of the exclusion, barring loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease, was clear and unambiguous and barred the entirety of the insured’s claims for pandemic related losses.

Pennsylvania

Macmiles, LLC d/b/a Grant Street Tavern v. Erie Ins. Exch., 2022 Pa. Super 203

The Court ruled for the insurer holding that the insured could not obtain coverage for its pandemic related economic losses under a policy requiring physical loss or damage. According to the Court, the insured’s building was not rendered unusable or uninhabitable. And COVID-19, a primarily airborne illness, did no physical damage to covered property. In-person dining was prohibited to prevent infected diners from spreading the virus to others, not because any condition of the insured property rendered the building unusable by diners.

Timothy A. Ungarean, DMD d/b/a Smile Savers Dentistry, PC v. CNA and Valley Forge Ins. Co., 2022 Pa. Super 204

In an inconsistent decision issued the same day as Macmiles, five of the Justices who ruled for the insurer in Macmiles, ruled for the insured in Ungarean finding that the economic losses suffered by the insured dentist were covered despite policy language requiring physical loss or damage. A strong dissent of four other Justices who had ruled for the insurer in Macmiles accused the majority of strained and unsupported interpretation of the policy, stating: “The Majority and the trial court have engaged in a strained reading of a property insurance policy in order to find coverage for a purely economic loss. The conclusion they reach is unsupportable and unreasonable under the plain language of the Policy and case law governing the interpretation of insurance policies. While [we] sympathize with the plight of the many business owners who have suffered, and continue to suffer, significant financial hardship because of the Covid-19 pandemic, this Court must render decisions based on the law and the facts of each case. In [our] view, the applicable law, the Policy language, and the facts before us lead inexorably to the conclusion that the trial court erred in granting summary judgment in favor of Ungarean and denying Appellants’ competing motion for summary judgment.”

Federal Appellate Tribunals

Second Circuit

In Re Generali COVID-19 Travel Insurance Litigation, No. 22-336 (2d Cir. 11-2-22)

The Court adopted the reasoning of the District Court and held for the insurer and against would be travelers who were impacted by stay-at-home orders, holding that under the laws of Georgia, Oregon, Missouri, Utah, Pennsylvania, and Florida the travelers’ claims were barred by a travel restriction exclusion. 

Fourth Circuit

Fountain Enterprises LLC et al. v. Markel Ins. Co., No. 21-2326 (4th Cir. 11-2-22)

The Court applied its previous decision in Uncork & Create LLC v. Cincinnati Ins. Co., 27 F.4th 926 (4th Cir. 2022), holding that coverage for business income loss and other expenses did not apply to claims for financial losses caused by the COVID-19 pandemic in the absence of any material destruction or material harm to the covered premises and further observing that this holding was consistent with the unanimous decisions by various sister circuits which have applied various states’ laws to similar insurance claims and policy provisions.

Sixth Circuit

Brunswick Paniniʼs LLC et al. v. Zurich Am. Ins. Co., No. 21-3222 (6th Cir. 12-21-22)

Ceres Enterprises LLC v. The Travelers Indem. Co. of Am., No. 21-3232 (6th Cir. 12-21-22)

Equity Planning Corp. v. Westfield Ins. Co., No. 21-3229 (6th Cir. 12-21-22) 

Family Tacos LLC v. Auto-Owners Ins. Co., No. 21-3224 (6th Cir. 12-21-22) 

Mikmar Inc. et al. v. Westfield Ins. Co., No. 21-3230 (6th Cir. 12-21-22)

These 5 decisions were all issued the same day and each ruled for the insurer based upon the Ohio Supreme Court’s decision in Neuro-Communication Serv., Inc. v. Cincinnati Ins. Co., No. 2022-Ohio-4379 (12-12-22). According to the Court, under Neuro’s analysis, the insureds in these cases did not sustain the required “direct physical loss of or damage to” property simply from loss of use.

Ninth Circuit

Caballero v. Massachusetts Bay Ins. Co., No. 21-35510 (9th Cir. 10-17-22)

Hot Yoga, Inc. v. Philadelphia Indem. Ins. Co., No. 21-35806 (9th Cir. 10-17-22)

Kara McCulloch, DMD v. Valley Forge Ins. Co., No. 21-35520 (9th Cir. 10-17-22)

Shokofeh Tabaraie DDS PLLC v. Aspen Am. Ins. Co., No. 21-35477 (9th Cir. 10-2-22)

In these 4 memorandum decisions, the Court ruled for the insurers holding that the insureds failed to show they suffered any direct physical loss or damage by sustaining economic losses due to the closure of their businesses because of COVID-19. The Court found its decision in each was governed by the Washington Supreme Court’s decision in Hill & Stout, PLLC v. Mut. of Enumclaw Ins. Co., 515 P.3d 525, 532 (Wash. 2022), holding that losses due to the COVID-19 closure orders did not qualify for coverage as direct physical loss of or damage to property.

BA LAX LLC et al. v. Hartford Fire Ins. Co., No. 21-55109 (9th Cir. 10-21-22)

The Court found that Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021), as well as several decisions by the California Court of Appeals required a ruling for the insurer because the insured’s economic losses did not arise from any physical loss or damage to insured property. 

Protege Restaurant Partners LLC v. Sentinel Ins. Co. Ltd., No. 21-16814 (9th Cir. 10-25-22)

Relying on the California Court of Appeals decisions in United Talent Agency v. Vigilant Insurance Co., 77 Cal. App. 5th 821 (2022), and Musso & Frank Grill Co. v. Mitsui Sumitomo Insurance USA Inc., 77 Cal. App. 5th 753 (2022), the Court ruled for the insurer holding that the mere loss of use of physical property to generate business income, without any other physical impact on the property, did not give rise to coverage for direct physical loss.

Tao Group Holdings LLC v. Employers Ins. Co. of Wausau, No. 22-15506 (9th Cir. 11-22-22)

The Court applying California, Illinois and New York law held that the insured was not entitled to coverage for its pandemic related economic losses because it did not sustain any physical loss or damage to insured property. According to the Court, the insured did not allege that it had to repair, replace, or dispose of any property that would indicate that it has sustained such physical loss or damage entitling it to coverage. 

Hoak et al. v. United Specialty Ins. Co., No. 21-16986 (9th Cir. 11-22-22)

Plaintiffs purchased ski pass insurance and sued to recover on the policy when a ski resort was shut down because of the pandemic. The Court ruled for the insurer holding that an “effective date of coverage” provision barred the insured’s claim. According to the Court, the “effective date of coverage” provision made clear that coverage terminated on the date upon which ski operations ceased due to an unforeseen event if that date was earlier than the scheduled end of the season. Because the shutting of the ski resort due to the pandemic was an unforeseen event, the insured was not entitled to coverage because the ski resort closed earlier than the end of the ski season. 

Giorgio Cosani Menswear Inc. et al. v. AmGuard Ins. Co., No. 22-55541 (9th Cir. 12-12-22)

The Court ruled for the insurer holding that an exclusion stating that coverage was excluded for any “loss or damage caused directly or indirectly by . . . [a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease,” was clear and unambiguous and barred the entirety of the insured’s claim for coverage for pandemic related economic losses.

Eleventh Circuit

15 Oz Fresh & Healthy Food LLC v. Underwriters at Lloyd’s London, No. 21-10949 (11th Cir. 10-11-22)

The Court found its prior decision in SA Palm Beach LLC v. Certain Underwriters at Lloyd’s, London, 32 F.4th 1347 (11th Cir. 2022), dispositive and held for the insurer. SA Palm Beach held that losses stemming from the suspension of business operations and extra costs incurred because of COVID-19 were insufficient under Florida law to trigger insurance coverage because they lacked the requisite “tangible alteration of the insured properties.”

Zurich Am. Ins. Co. v. Tavistock Restaurants Group LLC, No. 21-14215 (11th Cir. 11-17-22)

In a case involving Georgia law, the Court found that its previous decision in Henry’s La. Grill, Inc. v. Allied Ins. Co. of Am., 35 F.4th 1318, 1320–21 (11th Cir. 2022), was controlling and required that the insured’s claim for coverage for its pandemic related economic losses be denied. Georgia law as applied in Henry’s required a showing of physical alteration to property to satisfy the requirements of physical loss or damage, and the insured sustained no such loss in this case.

Federal and State Supreme Court Denials of Petitions for Further Review

For informational purposes only, these Supreme Courts denied petitions seeking further review of decisions favorable to the insurance industry. 

We wish to caution, however, that these denial orders mean nothing: A denial order simply means that the Supreme Court has decided not to hear the case. It should not be interpreted or cited for high court approval of the lower court decision.

Goodwill Indus. of Central Oklahoma Inc. v. Philadelphia Indem. Ins. Co., No. 21-1358 (U.S. 6-6-22), denying cert., Goodwill Indus. of Central Oklahoma Inc. v. Philadelphia Indem. Ins. Co., 21 F.4th 704 (10th Cir. 2021)

Bel Air Auto Auction Inc. v. Great Northern Co., No, 22-392 (U.S. 11-21-22), denying cert., Bel Air Auto Auction Inc. v. Great Northern Co., No. 21-1493 (4th Cir. 6-14-22)

Sweet Berry Cafe, Inc. v. Society Ins., Inc., No. 128399 (Ill. 9-28-22), denying leave to appeal, Sweet Berry Cafe, Inc. v. Society Ins., Inc., 2022 IL App (2d) 210088

Alley 64, Inc. v. Society Ins., No. 128576 (Ill. 9-28-22), denying leave to appeal, Alley 64, Inc. v. Society Ins., 2022 IL App (2d) 210401

Gourmet Deli Ren Cen Inc. v. CB Farm Bureau Gen. Ins. Co. of Michigan, No. 164578 (Mich. 12-7-22), denying leave to appeal, Gourmet Deli Ren Cen Inc. v. CB Farm Bureau Gen. Ins. Co. of Michigan, No. 357386 (Mich. App. 5-26-22)

Three Won Three Corp. v. CB Property-Owners Ins. Co., No. 164565 (Mich. 12-7-22), denying leave to appeal, Three Won Three Corp. v. CB Property-Owners Ins. Co., No. 356791 (Mich. App. 5-19-22)

Gavrilides Management Co. LLC et al. v. Michigan Ins. Co., No. 164166 (Mich. 12-7-22), denying leave to appeal, Gavrilides Management Co. LLC et al. v. Michigan Ins. Co., No. 354418 (Mich. App. 2-1-22)

Apple Annie, LLC v. Oregon Mut. Ins. Co., No. S276814 (Cal. 12-14-22), denying leave to appeal, Apple Annie, LLC v. Oregon Mut. Ins. Co., 82 Cal. App.5th 919 (Cal. App. 1st Dist. 9-2-22)

Learning Point: To date these high courts have all issued opinions in favor of insurers regarding pandemic related loss claims: Iowa, Maryland, Massachusetts, Ohio, Oklahoma, South Carolina, Washington and Wisconsin. As noted in this update, the Delaware Supreme Court adopted the reasoning of a trial court finding that a contamination exclusion barred the insured’s claim for pandemic loss coverage. And the Virginia Supreme Court refused to review a trial court decision finding no error in the trial court’s ruling that an insured suffered no physical loss or damage. In all trial and appellate cases moving forward, it is important to stress the nationwide consensus growing among the high courts stretching across the nation that there is no property coverage for pandemic related economic losses, just as the Ohio Supreme Court stated in its recent Neuro-Communications decision.