Reviewing Courts Continue to Rule for Insurers On Covid Coverage Claims

Reviewing courts across the nation continue to issue rulings mostly favorable to the insurance industry regarding business interruption claims arising from the pandemic.

State Court:

California

Spaghettini, LP v. Fireman’s Fund Ins. Co., No. A163858 (Cal. App., 1st Dist. 7-5-23)
The Court ruled that there was no business interruption coverage because the insured’s pleadings showed that its business interruption losses were caused by the government’s shutdown orders and not from the presence of COVID-19 on its premises.

Saddle Ranch Sunset LLC v. Fireman’s Fund Ins. Co., No. B313609 (Cal. App. 2nd Dist. 6-22-23)

The Court ruled in favor of the insured based upon a communicable disease extension in the policy. The Court held that the wording of the extension, covering such costs as treating or cleaning surfaces infected with the virus, demonstrated that a physical alteration of the premises was not required to trigger the extension. The Court distinguished other California property cases as not containing this language under this communicable disease extension.

Endeavor Operating C., LLC v. HDI Global Ins. Co., No. B323865 (Cal. App. 2nd Dist. 9-21-23)

The Court ruled that a property insurance policy requires damage to property for business interruption coverage. The Court ruled that as a matter of law there was no business interruption coverage even if COVID-19 particles adhered to the insured’s property. According to the Court, the ephemeral presence of a virus on the surface of property did not alter or cause a physical change in the condition of the property because it could be wiped off surfaces using ordinary cleaning materials, and it can disintegrate on its own in a matter of days or weeks.

JRK Property Holdings, Inc. v. Colony Ins. Co., No. B321806 (Cal. App. 2nd Dist. 10-2-23)

The Court followed a minority of other California appellate decisions and held that allegations that COVID-19 was present on the insured’s property was enough to trigger the physical loss or damage requirements under a property policy. The Court recognized this split in California authority which the California Supreme Court is expected to resolve.

San Jose Sharks v. Factory Mut. Ins. Co., No. H050441 (Cal. App. 6th Dist. 12-21-23)

The insured filed a petition for writ review of a trial court order striking most of its coverage theories because the insured did not adequately allege covered physical loss or damage to property. The Court held that the contamination exclusion unambiguously operated to exclude viral contamination such that the trial court’s ultimate determination that plaintiffs cannot allege covered physical loss or damage to property was correct. Accordingly, the Court denied the petition for review.

Georgia

H.J. Russell & Co. v. Landmark Am. Ins. Co., No. A23A0944 (Ga. App. 8-9-23)

Adhering to the overwhelming majority of federal and state decisions nationwide, the Court ruled that physical loss of or damage to property did not include intangible harm caused by COVID-19 or by a declaration of public emergency issued in its wake.

Illinois

Graduate Hotels Real Estate Fund III LP v. Hartford Fire Ins. Co., 2023 IL. App. (1st) 220178-U

Stats LLC v. The Continental Ins. Co., 2023 IL. App. (1st) 220936-U

The Illinois Appellate Court unanimously held in these decisions that the presence of COVID-19 on an insured’s premises does not cause physical loss or damage to property to trigger business interruption coverage under a property policy.

Kentucky

Varanese Fusion, LLC v. Erie Ins. Exch., No. 2022-CA-0822-MR (Ky. App. 8-4-23)

Adhering to many decisions nationwide, the Court ruled that the insured’s economic losses caused by the pandemic were not covered by its property policy because COVID-19 did not cause a direct physical loss to the insured property.

Minnesota

Fond Du Lac Mgmt. v. Lexington Ins. Co., No. A23-0639 (Minn. App. 12-11-23)

The Court ruled for the insurer holding that the insured failed to allege that COVID-19 was present at its premises and contaminated its property, causing direct physical loss or damage as required by the insured’s property policy.

North Carolina

Cato Corp. v. Zurich Am. Ins. Co., No. COA23-305 (N.C. App. 11-21-23)

The Court ruled that under the plain and unambiguous language of the policy, binding precedent, and persuasive case law in the Fourth Circuit and other jurisdictions, the insured failed to allege that COVID-19 caused a direct physical loss of or damage to its properties to trigger business interruption coverage.

Federal Court:

Eighth Circuit

K.C. Hopps, Ltd. v. The Cincinnati Ins. Co., No. 22-1356 (8th Cir. 8-21-23)

This was one of the first Covid coverage claims to proceed to trial, but after a jury verdict for the insurer, the insured still argued that it should get coverage as a matter of law. The Eighth Circuit disagreed holding that COVID-19 did not have a physical effect on real or personal property. Further, the insured did not limit its operations because COVID-19 particles were found at its properties—it did so because of the shutdown orders. There was simply no coverage under the plain language of the policy terms.

Armory Hospitality LLC v. Philadelphia Indem. Ins. Co., No. 22-3477 (8th Cir. 12-11-23)

The Court ruled for the insurer holding that the insured could not recover for its economic losses suffered from the pandemic because it could not meet the “physicality” requirement under its property policy. There must be some physicality to the the loss or damage to insured property and here there was none.

Ninth Circuit

The Madera Group, LLC v. Mitsui Sumitomo Ins. USA, Inc., No. 22-55619 (9th Cir. 8-28-23)

Best Auto Repair, Inc. v. Travelers Casualty Ins. Co. of Am., No. 22-55784 (9th Cir. 8-29-23)

European Travel Agency Corp. v. Allstate Ins. Co., No. 22-56144 (9th Cir. 10-5-23)

Jack Sarkissian DBA Jacks Jewelers v. Berkely Regional Ins. Co. (9th Cir. 10-5-23)

In each of these decisions, the Court ruled that the virus exclusion in the policies issued by the insurer was clear and unambiguous and barred the entirety of the insured’s claims for business interruption losses arising from the pandemic.

The Oregon Clinic, PC v. Fireman’s Fund Ins. Co., No. 22-35047 (9th Cir. 7-31-23)

After the Oregon Supreme Court refused the certification request issued by the 9th Circuit on whether Oregon would require tangible physical loss or damage to cover COVID-19 losses, the 9th Circuit issued a decision holding for the insurer. The Court ruled that the Oregon Supreme Court would construe the phrase “direct physical loss or damage” as requiring an insured to allege physical alteration of its property. In the absence of such physical alteration of the property, as was the case here, there was no coverage for the insured’s losses arising out of the pandemic.

Learning Point: To date, these state high courts are unanimous in holding that there is no commercial property coverage for pandemic related business income losses in the absence of direct physical loss or damage to insured property: Connecticut, Delaware, District of Columbia, Iowa, Louisiana, Maryland, Massachusetts, New Hampshire, Ohio, Oklahoma, South Carolina, Virginia, Washington, and Wisconsin. Nearly every federal circuit court of appeals has ruled likewise. The insurance bar is currently waiting to see if the high courts in California, New Jersey, New York, and Pennsylvania will follow suit and “close the books” on these pandemic economic loss claims.