Advisen Front Page News
- Tuesday, September 1, 2020
Insurers prevail in two more COVID-19-related BI lawsuits
Advisen
Insurers prevail in two more COVID-19-related BI lawsuits
By Erin Ayers, Advisen
Insurers notched two more victories with dismissals of two COVID-19-related business interruption lawsuits, with courts in both cases finding that civil authority shutdowns without actual physical damage do not trigger commercial property policies.
In the two cases, restaurants in California and Florida argued that the governmental orders shutting down their businesses amount to compensable physical loss of use of their insured properties.
In 10E LLC v. Travelers Indemnity, the United States District Court for the Central District of California noted that state law requires “distinct, demonstrable, physical alteration” to a property to qualify as “direct physical loss of or damage.”
“An insured cannot recover by attempting to artfully plead impairment to economically valuable use of property as physical loss or damage to property,” stated Judge Stephen V. Wilson in the dismissal. The plaintiff restaurant, he added, “plausibly alleges that in-person dining restrictions interfered with the use or value of its property – not that the restrictions caused direct physical loss or damage.”
10E’s policy contains a virus exclusion, but the court did not discuss the exclusion, having determined that lack of physical damage barred recovery under any of policy provisions.
In Malaube LLC v. Greenwich Insurance Company, the United States District Court for the Southern District of Florida ruled a Miami restaurant’s claim for “pure economic losses stemming with no connection to any physical loss or damage” should be dismissed.
“[W]hen we examine the language of the insurance policy, ‘direct physical’ modifies both ‘loss’ and ‘damage.’ That means that any ‘interruption in business must be caused by some physical problem with the covered property . . . which must be caused by a ‘covered cause of loss,’” wrote Judge Edwin G. Torres. Other policy provisions referencing rebuilding and repairing and “period of restoration” also support the conclusion that actual physical damage is required, the judge added.
Torres also cited the case of Mama Jo’s Inc. v Sparta Ins. Co., recently decided by the Eleventh Circuit, where a restaurant could not recover under a commercial property policy for loss of business due to lack of direct physical damage. In that case, a nearby road construction project that went on for two years created dust and debris, requiring daily cleanings of the insured property by the plaintiff and reducing customer traffic. The Eleventh Circuit found that because cleaning and painting were the only remedies needed, coverage could still not be afforded because “these expenses are merely economic losses.”
“When comparing Mama Jo’s to the allegations in this case, Plaintiff’s allegations are far weaker. Although the plaintiff in Mama Jo’s failed to put forth any evidence that his cleaning claim constituted a direct physical loss, he at least alleged that there was a physical intrusion (i.e. dust and debris) into his restaurant. Plaintiff has done nothing similar in this case,” Judge Torres said.
The two latest rulings join at least three other cases where courts have sided with insurers. Only one case – Studio 417, Inc. v. Cincinnati Insurance Co. in Missouri federal court – has survived a motion to dismiss, though hundreds of other business interruption cases are still pending across the country.
In Studio 417, the plaintiffs argued that viral contamination on the property constitutes physical damage, making properties “unsafe and unusable,” and that it was highly likely that COVID-19 had been present in their locations. In 10E LLC and Malaube, both judges note that the plaintiffs do not allege contamination of their properties and the rulings do not contemplate the possible physical impact of the virus.
“Whatever physical alteration the virus may cause to property in general, nothing in the [complaint] plausibly supports an inference that the virus physically altered Plaintiff’s property, however much the public health response to the virus may have affected business conditions for Plaintiff’s restaurant,” said Judge Wilson in 10E LLC.
